SWIRE ENGINEERING (1988) LTD. v. T.S. WONG & CO. LTD.

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J U D G M E N T

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Nazareth, JA:

1. This is the judgment of the Court.

2. The Defendant was the main contractor in respect of Lower Wong Tai Sin Estate Phase 7. The Plaintiff was the subcontractor in respect of the supply and installation of fire service works in the redevelopment. .

3. On 10th July 1990 the Plaintiff issued a writ claiming first, HK$961,480 for the Defendant's failure to ensure the safety of goods and materials brought on to the construction site and lost or stolen; and second:

"the sum of HK$30,425 being the outstanding amount due under two invoices no. 8442494 and 8442693 ... respectively for services rendered and work done by the Plaintiff at the Defendant's request, the particulars of which has (sic) been given to the Defendant before and are set out herein below:

4. The claims for HK$961,480 and $8,500 were settled.

5. In its defence to the claim for $38,425 the Defendant in substance pleaded that the subject matter of that claim ("the invoiced items") was an authorised variation under the subcontract which the Plaintiff was obliged to provide, and the value of which was to be determined by the surveyor under the main contract; that the surveyor had assessed the value at $26,775 which amount the Defendant had paid in settlement of the cost of the authorised works.

6. The Plaintiff in its reply denied that the invoiced items were an authorised variation under the subcontract and averred that in response to the invitation of the Defendant made by one of its staff, Sammy Wong, the Plaintiff made a quotation in the sum of $63,000 for the supply of the invoiced items in June 1989, which Sammy Wong said was too high. To accommodate the Defendant, the Plaintiff on 5th September 1989 made a second quotation in the reduced sum of $56,700. On 8th September 1989 Sammy Wong verbally requested the Plaintiff to provide the invoiced items and as the Plaintiff insisted that someone sign on behalf of the Defendant, he signed the Plaintiff's second quotation, in reliance of which the Plaintiff supplied and carried out the invoiced items. In substance, the Plaintiff's claim was founded upon a contract for the supply of services and goods at the quoted price.

7. It is convenient at this point to set out clauses 9 and 10 of the subcontract:

"9.        In the event of the Contractor

    (A)    requiring or authorising in writing any variations of the Sub-Contract Works; or

    (B)    issuing in writing to the Sub-Contractor any instructions of the Architect in relation to the Sub-Contract Works (whether in regard to variations or otherwise howsoever);

then the Sub-Contractor shall forthwith comply with and carry out the same in all respects accordingly. Save as aforesaid no variation of the Sub-Contract Works shall be made or allowed by the Sub-Contractor.

10.          The price of the Sub-Contract Works (hereinafter referred to as "The Sub-Contract Sum") shall be the sum named in or determined by the provisions of Part III of the Appendix to this Sub-Contract or such other sum as shall become payable by reason of any authorised variations. The value of all authorised variations shall be determined by the Surveyor for the time being under the Main Contract (or if none the Architect) in accordance with the applicable provisions (relating to the ascertainment of prices for authorised variations laid down in the Main Contract: save that where the Sub-Contractor has with the agreement of the Contractor and the Architect annexed to this Sub-Contract a Schedule of Prices for measured work and/or a schedule of Day Work Prices, such prices shall be allowed to the Sub-Contractor in determining the value of authorised variations."

8. It is also necessary to note that in its defence, the Defendant having set out clause 10 of the Sub-Contract in para. 14 of its defence, continued:

"15.      As a result of the instructions reference no. BSF-1 of the Building Services Engineer of the WTS Project the Plaintiff was asked by the Defendant to submit a quotation for variation works covered by the said instructions including, inter alia, the supply and installation of 315 number of glass fronted boxes together with padlocks ("the Variation Works")."

9. The claim came before His Honour Judge Wesley Wong for hearing. According to the judge's notes, Mr J. Hingorani for the Plaintiff in his opening address touched upon the reference to "BSF1" apparently stating that the instructions the engineer gave were at p. 125. This produced an interjection from Mr Kwok, the Defendant's solicitor, that "it is not BSF-1 in para. 15. It is A-14 under B12". The judge enquired if Mr Kwok was going to amend. Mr Hingorani indicated that the Plaintiff's case had been prepared on the basis of BSF-1 and he would ask for an adjournment and costs if there was to be an amendment. Mr Kwok in the event decided not to apply for an amendment.

10. In his judgment in favour of the Plaintiff, the judge went straight to the substance of the defence we have already indicated, mentioning that

"The supply, and installation of those boxes were variation works covered by instructions in writing under reference no. BSF-1. ...

    During the opening speech by the Plaintiff, Defendant's solicitor stood up and said that in paragraph 15 of the Defence the instruction was not under reference no. BSF-1 but under A-14. ... the Defendant's solicitor declined my invitation and indicated he would not amend.

    That being the attitude of the Defence the case proceeded on the basis that instructions for variation came from reference no. BSF-1."

11. The judge then pointed out that the purpose of pleadings is to define the issues so that relevant evidence and documents can be introduced, citing Esso Petroleum Co. Ltd v Southport Corporation [1956] AC 218, 241; and that laxity cannot be justified in pleadings if parties are legally represented. (Tang Woon Kai v Tang Ting Chuen [1970] HKLR 533) He went on to point out that the instructions in BSF-1 had nothing to do with the invoiced items and concluded that:

"The main defence must therefore fail because the document the Defendant relied on has no bearing on any instructions either from the Defendant or from the Building Services to the Defendant in respect of those boxes."

12. The Defendant's main ground of appeal is that the reference to BSF-l was a non-material averment by reference to which the claim therefore could not possibly fail.

13. Mr Hingorani explained the importance of the reference to BSF-1, i.e. because under the main contract and the sub-contract the origination of all authorised variations lay in instructions given by the architect. That was not disputed, and we accept is a reasonable explanation for the position he took on the suggested amendment of the reference to BSF-1. But it is no answer to the Defendant's submission that the reference to BSF-1 was a non-material averment. It is, in the particular context, plainly quite sufficient to plead and establish that there was an authorised variation. The document containing the architect's instructions by which the authorised variations originated, would be a matter of evidence. The judge can therefore clearly be seen to be wrong in rejecting the defence simply upon the erroneous reference to BSF-1.

14. That however leaves the question of whether the invoiced items were an authorised variation of the sub-contract, to be. resolved by this court. As already mentioned, it is clear, and not in dispute, that under the main contract and the sub-contract an authorised variation must originate from the architect. There is no evidence that it did. On the contrary, the Defendant's attempted reliance upon BSF-1 and then A-14, neither of which disclosed such instructions, and the surrounding circumstances indicate that there were no such instructions. Moreover, clause 9 of the sub-contract clearly requires a variation to be in writing, a requirement that is not surprising having regard to the consequences i.e. the sub-contractor being obliged to perform the variation work and to be entitled only to payment of the value certified by the surveyor, without the safeguard of the tendered contract price which applies to contract as opposed to variation work. All of this points clearly to, and it is our view, that the invoiced items were not an authorised variation.

15. However, Mr Graham submits that the written quotations of 30th June 1989 and 4th September 1989 made it clear that they were made in response to a verbal request and were for variation works, and that accordingly by making those quotations the Plaintiff "was forbearing in its strict right to require a variation instruction in writing". He relies upon paras 1605 and 1606 at pp 1005 and 1006 of the 26th Edition of Chitty on Contract:

"Waiver or forbearance. Where one party voluntarily accedes to a request by the other that he should forbear to insist on the mode of performance fixed by the contract, the court may hold that he has waived his right to require that the contract be performed in this respect according to its original tenor. Waiver may also be held to have occurred if, without any request, one party represents to the other that he will forbear to enforce or rely on a term of the contract to be performed or observed by the other party, and the other party acts in reliance on that representation. ... A waiver may be oral or written or inferred from conduct even though the provision waived is found in a contract required to be evidenced by writing."

16. But the evidence does not establish any representation by the Plaintiff that it would forbear to enforce or rely upon the terms of the subcontract concerned. What Mr Graham relies upon is simply the submission of the quotations in response to Sammy Wong's verbal request. However, on the evidence those quotations were neither made nor understood by the Plaintiff as being in pursuance of an authorised variation. On the contrary, the evidence is that the Plaintiff required the second quotation to be signed by or on behalf of the Defendant before it was prepared to carry out the work. Clearly it was not purporting to forbear or waive any non-observance of the terms of the contract but proceeding rather upon the basis that as the invoiced items were not within the sub-contract, they would have to be specifically authorised in writing as an independent contract. The defence of forbearance or waiver therefore fails.

17. To proceed, if the Plaintiff is to succeed upon its claim, clearly it has to found upon Sammy Wong's signing of the quotation' and ordering the work to commence. This brings us to Mr Graham's third submission, i.e. that Sammy Wong had no actual, or implied or ostensible authority to bind the Defendant. He relies upon the dictum of Diplock LJ (as he then was) in Freeman and Lockyer v Buckhurst [1964] 2 QB 480, 505, 506, approved in British Bank v Sun Life [1983] 2 Lloyd's Law Rep. 9:

"If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown:

(1)     that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be endorsed was made to the contractor;

(2)    that such representation was made by a person or persons who had "actual" authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3)    that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and

(4)    that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent."

18. With reference to the first condition, Mr Graham points to the evidence of Sammy Wong, that he had no authority; of Sam Law, a senior quantity surveyor of the Defendant, that only the chairman, director and managing director and those above project manager had authority to enter into contract; and of Hau Chi-ming, the Defendant's project manager, that even he himself had no authority to enter contracts.

19. Sammy Wong was a building service engineer of the Defendant and chairman at sub-contractors coordination meetings. His evidence can plainly be seen to have been unsatisfactory and indeed, somewhat evasive. There was evidence that he had signed not only quotations sent to him but also some sent not to him at the site but to Mr Hau at the head office.

20. Applying the four foregoing conditions to the facts, first on the evidence it must be accepted that Hau made a representation to Chia, a supervisor with the Plaintiff, who handled the quotations, that Sammy Wong had authority to commit the Defendant. That evidence was not contested on the Plaintiff's behalf. Furthermore, apart from his important position in the Defendant company with regard to the subcontract, Sammy Wong was permitted to handle the particular matter, to specifically attend to the obtaining of the two quotations and to make the representations that the first was too high. A copy of the second quotation sent to the head office of the Defendant was passed on to Sammy Wong, and probably had been first approved by the finance department of the Defendant. The quotation was not only signed by Sammy Wong but stamped with a stamp which, while not the Defendant's seal, was the Defendant's chop for the particular subcontract site: All this, in our judgment, is conduct that constitutes a representation by the company that Sammy Wong had authority to bind it in the matter. Second, Hau as project manager was a person who had actual authority to manage the business in respect of the invoiced items. As to the conduct adverted to, as part of the Defendant's system of operation, it must have been sanctioned by  persons who at the very least had such actual authority. Third, on the evidence, in our judgment, the Plaintiff was on the probabilities clearly induced by such representations particularly that by conduct to enter into the agreement to supply the invoiced items in reliance upon Hau's representation. Fourth, there is no suggestion that the Defendant was by its memorandum or articles of association deprived of the capacity either to enter into a contract for the supply of the invoiced items or to delegate authority to enter into a contract of that kind to Sammy Wong.

21. In our view, therefore, it was within the apparent or ostensible authority of Sammy Wong to enter into the contract for supply of the invoiced items. We would add that the conduct of the parties was consistent with the existence of such authority.

22. We conclude accordingly, although we do not reach that result by the same route as the judge below, that he was right in giving judgment for the Plaintiff. The appeal is accordingly dismissed.