Yu Hon Moon t/a Sunshine Construction Co v. Yuanda Curtain Wall (Hong Kong) Ltd

DCCJ 3372/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3372 OF 2013

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JUDGMENT

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1.This is a dispute between different tiers of contractors involved in a commercial development project in Central (“Project”).

Background

2.Paul Y. Builders Ltd (“Paul Y”) was engaged by Diamond String Ltd (“DSL”) as the main contractor of the Project.  Paul Y contracted out to the defendant (“Yuanda”), inter alia, the supply, installation, testing (including cleaning work) of curtain walls and glass walls and related installations.  Yuanda in turn contracted out to Tai Kei Engineering Ltd (“Tai Kei”) the same works (“Sub-Sub-Contract Works”).

3.Of the Sub-Sub-Contract Works, the Cleaning Work for the curtain walls and related installations comprised in the external envelope of the building under construction (“Cleaning Work”) was eventually sub-contracted to the plaintiff (“Sunshine”) which was carried out between January and February 2013.  Disputes have since arisen as to whether Sunshine was engaged by Tai Kei or Yuanda, hence this action.

4.Of the various issues in dispute identified by the parties during case management process, there remain only the following issues for my resolution, namely, whether there existed a contract between Sunshine and Yuanda for the Cleaning Work; and, if yes, whether the value of the work completed by Sunshine should be assessed by reference to the east side only or all 4 sides of the building under construction (“Building”), the parties having agreed on quantum in either scenarios.

Sunshine’s Case     

5.It is Sunshine’s pleaded case that Sunshine replaced Tai Kei in performing the Cleaning Work at the request of Mr Seto Kin Sing (“Seto”), a contract manager of Yuanda, through Mr Lui Wan Keung (“Lui”), a site supervisor of Yuanda.  On 27 December 2012, Sunshine provided a quotation (“Quotation”) to Mr Seto and Yuanda agreed to pay for the Cleaning Work at the unit rates quoted in the Quotation subject to any adjustment by Mr Leung Ah Ngau of Tai Kei (“Leung”).  Leung did propose a downward adjustment to one of the unit rates with which Sunshine agreed by commencing works (“Agreement”).

6.Sunshine completed part of the Cleaning Work in early February 2013 when Yuanda denied Sunshine access to the construction site.  In breach of the Agreement, Yuanda failed to pay for the works so completed.

Yuanda’s case

7.Yuanda denies the existence of the Agreement and maintains that Sunshine was the sub-contractor engaged by Tai Kei, not Yuanda, to carry out the Cleaning Work. 

8.Yuanda avers that in December 2012, Leung informed Seto and Lui on various occasions at the construction site that Tai Kei had difficulty in finding a sub-contractor to carry out the Cleaning Work and asked for a referral.  Lui told Leung that Sunshine was up to the task and offered to assist by asking Sunshine to provide a quotation for Tai Kei’s consideration and agreement.  Towards the end of December 2012, Lui invited a quotation from Sunshine for the Cleaning Work.  On or about 27 December 2012, Yuanda received the Quotation which Seto passed on to Leung and requested the latter to negotiate and agree on the same directly with Sunshine.  An agreement on the Quotation was subsequently reached between Tai Kei and Sunshine without Yuanda’s involvement.

9.By early February 2013, Tai Kei (with Sunshine being its sub-contractor) was only able to complete the Cleaning Work for the east side of the Building while those for the other 3 sides of the Building were not completed to the satisfaction of Yuanda.  Seto therefore requested Leung to employ another contractor to replace Sunshine. Consequently, Tai Kei terminated the contract with Sunshine on 5 February 2013 but Tai Kei was unable to engage a replacement contractor to take up the remainder of the Cleaning Work before Yuanda terminated its contract with Tai Kei on 28 February 2013.

10.With reference to two sets of four elevation drawings each for the four sides of the Building (“Drawings”) in which the cleansed panels and those remained to be cleansed are highlighted in different colors, Yuanda avers that only the Cleaning Work done by Sunshine on the east side of the Building was confirmed and accepted by Yuanda and Tai Kei as evidenced by the endorsement thereon by Lui and Mr Tsang Kwok Yeung of Tai Kei (“Tsang”). 

11.Yuanda admits to have settled the outstanding wages of Sunshine’s workers for January and February 2013 in the respective sums of HK$117,800 and HK$54,150, totalling HK$171,950 for which Sunshine agrees to give credit. 

12.Since the agreed value of the cleaning work for east side of the Building only comes to $116,475.88, Yuanda says, it has overpaid Sunshine by the sum of $55,475.12.  Should the court hold that a contract existed between Yuanda and Sunshine, Yuanda would maintain its counterclaim for the same.

13.One may wonder why, despite its position as aforesaid, Yuanda has not commenced third party proceedings against Tai Kei in respect of Sunshine’s claim herein (though, as will be seen below, Tai Kei’s representatives did have a very limited involvement in this action).  Seto informed this court that due to its ongoing arbitration with Paul Y, Yuanda had yet to settle payment with Tai Kei.  Whether this explains the absence of any third party proceedings against Tai Kei is beyond me.

Sunshine’s evidence

14.Mr Yu Hon Moon (“Yu”) himself gave evidence for Sunshine.  In his witness statement adopted as evidence in chief, he said Lui approached him and asked for a quotation in respect of the Cleaning Work originally contracted out to Tai Kei because Yuanda was not satisfied with Tai Kei’s performance.  A quotation was to be provided to Seto with a view to replacing Tai Kei to complete the Cleaning Work. 

15.With the telephone number provided by Lui, Yu called Seto to ask for the latter’s fax number for transmission of the Quotation.  As the Cleaning Work were originally contracted out to Tai Kei, Seto told Yu that Tai Kei’s agreement had to be sought so that Yuanda could deduct payment to be made to Sunshine from payment due to Tai Kei. 

16.Subsequently, Leung told Yu that Seto had passed on the Quotation to Tai Kei with a request that Leung should endorse the same.  Leung made a downward adjustment to one of the unit rates in the Quotation, inserted the remark: “清潔費由遠大代支” and signed the same.  Tai Kei’s company chop was also affixed against the said remark of Leung as well as the adjusted unit rate.  The Quotation as endorsed by Leung was returned by fax to Sunshine and copied to Seto. 

17.Before commencement of the Cleaning Work, Yu understood from Seto over the phone that the latter had received from Tai Kei a copy of the Quotation endorsed by Tai Kei. 

18.On 10 January and 4 February 2013 respectively, Lui passed to Yu one set each of the Drawings saying that the highlighted parts of the same should form the basis of Sunshine’s invoices for the Cleaning Work.  Each set of the Drawings were stapled together with the one for the east side of the Building bearing the signatures of Lui and Tsang, which signifies acceptance of the cleaning work performed on all 4 sides of the Building as being satisfactory.   

19.Sunshine performed the Cleaning Work from 2 January 2013 up to 4 February 2013 and had never received any notice of its cleaning work being rejected before termination of its contract on 6 February 2013.

20.I pause here to note that, despite the prominent roles of Lui, Leung and Tsang in this matter, none of them were called as witness by either party.  Lui has left Yuanda and is unwilling to testify for Yuanda.  As to Leung and Tsang, Sunshine managed to obtain from them a joint statement dated 22 July 2013, which by and large is a replica of Yu’s witness statement.  When asked by Mr Yan, counsel for Yuanda, Yu could offer no explanation as to why he had not asked either Leung or Tsang to serve as Sunshine’s witness.  As neither Leung nor Tsang was put up for cross-examination at trial, I place no weight whatsoever on the contents of their joint statement.  

21.In his evidence in chief, Yu changed his evidence on the timing when he first came to know about the prior involvement of Tai Kei.  Yu said when Lui first approached him, he was not told the Cleaning Work were originally taken up by Tai Kei. After the Quotation was sent to Seto on 28 December 2012, there was not much communication before Lui asked Sunshine to start working.  After Sunshine started working, Seto told Yu about Tai Kei’s prior involvement because of the need to deduct payment to be made to Sunshine from payment due to Tai Kei.  Yu then telephoned Leung once to discuss the Quotation when Leung asked to reduce the unit rate for an item from $60 to $50.  On 8 January 2013, Leung sent to Yu by fax the Quotation endorsed by Leung as aforesaid.

22.When Sunshine tendered its first invoice for payment, Yu said, a Miss Fan of Yuanda (“Miss Fan”) advised him that Yuanda would first pay Sunshine’s workers’ wages, leaving the balance to be settled upon completion of the Cleaning Work.  And Sunshine’s invoices were issued by reference to those parts of the Drawings that were highlighted as having been cleansed.

23.In relation to the second invoice of Sunshine, however, Yuanda failed to make payment and Sunshine’s workers sought assistance from the Labour Department.  Yu was subsequently provided with copy documents which show Paul Y and Yuanda to have settled payment with the workers on 3 July 2013.

Yuanda’s evidence

24.Seto was the only witness of Yuanda who verified Yuanda’s case as aforesaid.  He said it was Yuanda’s company policy and practice to have formal written contracts executed with its contractors.  As a contract manager, however, he did not have the necessary authority to sign contracts on Yuanda’s behalf.  He referred to various contracts adduced in evidence to show the same were signed by general managers normally posted from the Mainland given the PRC-background of Yuanda.

25.Seto recalled having told Leung that he did not have anyone to refer to Tai Kei to take up the Cleaning Work and it was Lui who told Leung that he knew Yu was capable of taking up such work.  To avoid any delay, Seto asked Lui to provide assistance to Tak Kei by asking Yu to provide a quotation for the Cleaning Work for Tai Kei’s consideration and agreement.  Leung agreed to this arrangement. Subsequently, Lui reported to Seto that he had asked Yu to send a quotation to Yuanda’s head office for Seto’s attention for onward transmission to Tai Kei so that Tai Kei and Yu could negotiate directly between themselves. 

26.Seto recalled having called Yu to inform him that Tai Kei was Yuanda’s sub-contractor for the Cleaning Work and that Sunshine’s quotation was to be agreed directly between Sunshine and Tai Kei and there would be no contractual relationship between Sunshine and Yuanda.   

27.On or about 8 January 2013, Seto received from Tai Kei a copy of the Quotation endorsed by Leung as aforesaid.  On seeing the remark “清潔費由遠大代支”, Seto called to enquire with Leung who said in reply that this was meant to comfort Sunshine and to cater for the situation where Yuanda would pay the wages of Sunshine’s workers on Tai Kei’s behalf in case Tai Kei was unable to pay Sunshine.  Seto raised no objection to this because this was what Yuanda would in any event be obliged to do under the Employment Ordinance.   

28.During the only telephone conversation with Yu, Seto asked Yu to send him a quotation because he wished to make sure Sunshine’s quotation would cover the cleaning work under the Sub-Sub-Contract Works. During the telephone conversation, he asked Yu to negotiate with Tai Kei direct as Yuanda was merely looking for a contractor on Tai Kei’s behalf.  After this conversation, Seto did not have any further telephone communication with Yu. 

29.Seto accepted that the Quotation was addressed to Yuanda and not Tai Kei.  As he was more concerned about the contents, he said, he passed on the Quotation to Tai Kei without further ado.

30.In December 2012 and January 2013, Seto said, Yuanda was worried about Tai Kei not being able to pay its workers and was therefore already paying the wages of Tai Kei’s workers on Tai Kei’s behalf.  Yuanda paid also the wages of Sunshine’s workers because it treated Sunshine’s workers as those of Tai Kei.  In the course of the Cleaning Work, Tai Kei was the party who liaised with, supervised and monitored Sunshine and then reported progress to Yuanda during regular site progress meetings.  After having terminated its contract with Tai Kei on 28 February 2013, Yuanda engaged one Gold Sunflower Engineering Ltd (“Gold Sunflower”) to complete the outstanding works under the Sub-Sub-Contract Works including the Cleaning Work.  This time, Yuanda was not required to pay wages on Gold Sunflower’s behalf.

Discussion

31.By way of general observation, Seto impressed me as a forthcoming and straightforward witness whose unreserved and cogent evidence remained unshaken during cross-examination.  The only occasion when he wavered a bit before returning an affirmative answer was when he was questioned if he did specifically tell Yu there would be no contract between Yuanda and Sunshine.  This however does not undermine the overall reliability of his evidence.

32.In contrast, Yu discredited himself right at the beginning of his testimony by changing his story as to when he first came to know about Tai Kei’s involvement. When Mr Yan highlighted the inconsistencies between his oral testimony and his witness statement in this regard, Yu could offer no explanation other than maintaining what he said in court as the true story.  However, his witness statement which he verified by his statement of truth and adopted as evidence in chief clearly points to his knowledge of Tai Kei’s involvement before commencement of work.  It would not be too harsh to say Yu’s change of story appears to be calculated to distance Sunshine from Tai Kei in pursuing the present claim against Yuanda.  Insofar as Yu’s oral evidence conflicts with his own statement in this regard, I place no weight on the same. 

33.With only Yu and Seto testifying without any evidence from the other key players, this is a case of a man’s words against the other in the absence of a written contract duly signed by both Yuanda and Sunshine.  As it transpires, by reason of Yu’s answers in cross-examination, Sunshine’s case is doomed to fail.

34.It will be recalled that Sunshine’s pleaded case on there being a contract between Sunshine and Yuanda is founded on Yuanda’s agreement to pay the unit rates quoted in the Quotation subject to adjustment of the rates by Leung on Tai Kei’s behalf.  The Agreement came about when Leung confirmed the rates save one adjustment with which Sunshine agreed by commencing work. 

35.During cross-examination, however, Yu said after the Quotation was sent to Seto, Seto did not return any telephone call to him until after Sunshine had started to work.  Yu admitted that he had never asked Seto if the latter had accepted the Quotation as endorsed by Leung, nor did Seto ever tell Yu that Yuanda had accepted the same.  Neither was Seto ever asked to sign to confirm acceptance of the Quotation so endorsed.  Indeed, it is Yu’s evidence that before commencement of work, he only had one telephone conversation with Seto during which he only asked for the latter’s fax number.

36.That being so, as Mr Yan rightly pointed out, Sunshine’s case on the existence of a contract between Sunshine and Yuanda must fail in limine when there is simply no evidence of Yuanda (through Seto) having agreed to or accepted the Quotation. As Sunshine has never pleaded any case of contract by conduct or of Leung being an agent of Yuanda for the purpose of the alleged contract between Sunshine and Yuanda, Sunshine has nothing to fall back upon. 

37.I also agree with Mr Yan that even if one refers to the conduct of the key players herein, the same was equivocal anyway.  For instance, Yuanda’s payment of wages of Sunshine’s workers does not necessarily point to the existence of any contractual relationship between Yuanda and Sunshine.  As Seto said, Yuanda would be obliged to pay the wages of Sunshine’s workers under the Employment Ordinance anyway if its sub-contractor failed so to do.

38.In any event, the documentary evidence adduced herein militates against Sunshine’s case.

39.I first look at the Quotation.  Sunshine relies heavily on the fact that it was addressed to Yuanda at Lui’s request.  If there really was a contract between Yuanda and Sunshine for replacement of Tai Kei and Yu came to know about the prior involvement of Tai Kei only after commencement of work, however, one wonders why Sunshine would have agreed to any downward adjustment of unit rates by Tai Kei.

40.Sunshine rationalizes Tai Kei’s involvement by reference to the arrangement for Yuanda to deduct the payment to be made to Sunshine from payment due to Tai Kei in respect of the Cleaning Work (“Arrangement”).  Even so, any such deduction should be a matter purely between Yuanda and Tai Kei and should not have obliged Sunshine to agree to charging less for the Cleaning Work, especially when Leung was not even a business acquaintance of Yu.

41.Mr Chan, solicitor for Sunshine, relies heavily on Leung’s remark “清潔費由遠大代支”.  However, it is Yu’s evidence that he did not enquire with either Leung or Seto as to the meaning of this remark. Whatever meaning Yu might have subjectively attributed to this remark (which has no bearing on the proper construction of this remark anyway), the term “代支” does suggest to an objective bystander that there was some kind of relationship between Sunshine and Tai Kei under which payment for the Cleaning Work was to be made by Yuanda in Tai Kei’s stead.  That the term “清潔費” (instead of any reference to workers’ wages) was used does not deflect from the fact that payment by Yuanda was to be made on someone else’s behalf rather than by reason of its own liability.

42.As a matter of fact, Tai Kei’s presence is ubiquitous in this matter.  Simply look at the Drawings and one would ask: why should Tsang of Tai Kei but not any representative from Sunshine be asked to sign on the same (for whatever purpose) if the contract was between Yuanda and Sunshine who had replaced Tai Kei.  Yu said for the first time during cross-examination that he and his workers were present when the Drawings were handed over to him so that he could verify the contents of the Drawings.  That might well be so.  But why should Sunshine as a contracting party in its own right be taking such a passive role?  All Yu could do in rationalizing this involvement of Tai Kei was to refer to the Arrangement.  As said, this could hardly justify Tai Kei’s rather deep involvement in Sunshine’s performance of the Cleaning Work.  In my view, Tai Kei’s omnipresence lends support to Yuanda’s case rather than to that of Sunshine.

43.Mr Chan further referred to a payment certificate of Yuanda dated 15 April 2013 (“Payment Certificate”) prepared by Seto/Miss Fan in respect of payment due to Tai Kei and, in particular, a reference there to a 70% deduction for payment to Sunshine for cleaning work (扣除（紅日公司）的清潔70%代工), as evidence of Sunshine being Yuanda’s contractor.  Mr Chan sought to draw a contrast between the term “代工” and other references in the same certificate to deduction for what appear to be wages of Tai Kei’s own workers where the term “薪金” was used (but during cross-examination, Seto was not asked to explain the latter term). 

44.In this regard, I find unassailable the explanation of Seto who prepared the Payment Certificate.  He drew attention to the last item in the same certificate relating to payment made to Gold Sunflower which specifically refers to a contract (合同) with this sub-contractor and contrasted the same with the reference to Sunshine above, which, Seto said, was related to the wages of Sunshine’s workers paid on Tai Kei’s behalf, hence the term “代工”. 

45.Despite Mr Chan’s query on the amount so deducted from Tai Kei, I also find credible Seto’s explanation as to how the sum was arrived at (being roughly about 70% of the total sum Yuanda had paid to Sunshine’s workers).   At the very least, the sum could not have been 70% of the total sum under the two invoices issued by Sunshine for the work done before termination of contract.

46.Mr Chan also referred to Clause 3 of the contract between Yuanda and Tai Kei which prohibits the latter from further contracting out the Sub-Sub-Contract Works (“Clause 3”) in arguing that Yuanda would not have allowed Tai Kei to contract out the Cleaning Work to Sunshine. 

47.There is nothing in this argument.  For one thing, the Payment Certificate has named contractors other than Sunshine to whom Tai Kei had apparently contracted out part of the Sub-Sub-Contract Works and Yuanda had similarly made payment on Tai Kei’s behalf which had to be deducted from the payment due to Tai Kei. For another, Mr Seto must be right in saying that Yuanda was entitled not to enforce Clause 3, if commercial considerations so dictate. 

48.For completeness sake, in light of the objective documentary evidence adduced by Yuanda, I accept Seto’s evidence that he did not have the necessary authority to enter into any contract on Yuanda’s behalf.  I further hold that there is no basis for Sunshine to rely on any apparent authority on Seto’s part when Yu had merely heard Lui talked about Seto’s role in the Project while Yu accepted that Lui as a mere foreman had no authority to bind Yuanda to any contract.

49.I therefore rule against Sunshine on the existence of any contract between Yuanda and Sunshine and come to the finding that there was no contract between the two.

50.If I am wrong on this, however, I am prepared to rule in favour of Sunshine on quantum, that is, Yuanda should pay Sunshine on the basis of the Drawings for all 4 sides of the Building instead of merely the east side.  For one thing, it is Seto’s testimony that Lui had told him that Sunshine had completed the cleaning work as per the Drawings even though Lui had signed only the elevation drawings for the east side.  For another, given the absence of any evidence from Lui, there is nothing to rebut Yu’s evidence that Lui told him to submit invoices for payment by reference to the highlighted parts of the Drawings and that Sunshine did prepare the two invoices accordingly. 

51.It transpired during cross-examination of Seto that Seto did procure payment of the wages of Sunshine’s workers for January 2013 on the basis of the first set of 4 elevation drawings (for January 2013) despite the absence of Lui’s signature on the elevation drawings for 3 sides of the Building.  Seto described this as a risk taken by Yuanda and said he had demanded Lui to sign all 4 elevation drawings but Lui never complied.  When the second set of 4 elevation drawings (for February 2013), which again was without Lui’s signature on all 4 elevation drawings, was submitted to Seto for payment, Seto refused to procure payment this time.  Wthout Lui’s signatures, Seto explained, it was not clear if Lui had personally verified the work done.  This may well be so.  But this is no more than an internal matter of Yuanda which does not necessarily contradict Sunshine’s evidence that the cleaning work covered by Sunshine’s two invoices had been completed. 

52.Yuanda also avers that such cleaning work was not accepted by Paul Y and/or DSL.  In my view, this is unsustainable.  For one thing, no evidence whatsoever has been adduced by Yuanda to show any grounds for the alleged rejection of Sunshine’s work.  For another, even if such grounds did exist, there is nothing to suggest, and Yuanda is in any event not arguing, that any contract between Yuanda and Sunshine should include a term whereby payment to Sunshine should be made conditional upon acceptance of the latter’s works by Paul Y and/or DSL.  

Conclusion

53.Sunshine’s claim is therefore dismissed.  In the circumstances, there is no need to deal with Yuanda’s counterclaim.

54.I make a costs order nisi that Sunshine shall pay Yuanda its costs of the action including its counterclaim, to be taxed if not agreed with a certificate for counsel.

Mr C K Chan of Bennett Chan & Co, for the plaintiff

Mr Yan Kwok Wing, instructed by Wong & Lawyers, for the defendant