Yee Sang Metal Supplies Co v. Tak Ming Co Ltd
Read the full judgment text of CACV 2/1969 on BabelCite. This Court of Appeal judgment was delivered on 2 June 1969.
1. I agree. In this appeal I do not think that it is necessary for me to recapitulate the facts and analyse the arguments of counsel. Mr. Litton has said everything which could possibly have been said in support of the appeal. But, as my Brother has said, the learned judge in the court below considered the evidence very carefully indeed; and I see no reason why this Court should interfere with the construction which he put upon the two all-important letters of 5th and 9th February, 1965, and the
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CACV000002/1969 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO.2 OF 1969 (On Appeal from O. J. Action No. 2212 of 1966)
----------------- Coram: Blair-Kerr & Williams, JJ. Date of Judgment: 2 June 1969 ----------------- JUDGMENT ----------------- Blair-Kerr, J: 1. I agree. In this appeal I do not think that it is necessary for me to recapitulate the facts and analyse the arguments of counsel. Mr. Litton has said everything which could possibly have been said in support of the appeal. But, as my Brother has said, the learned judge in the court below considered the evidence very carefully indeed; and I see no reason why this Court should interfere with the construction which he put upon the two all-important letters of 5th and 9th February, 1965, and the conclusion to which he arrived in the light of all the circumstances disclosed in the evidence. 2. The appeal is accordingly dismissed. -2 JUN 1969
Representation: Litton (Samuel Soo & Co.) for Appellant. Swaine (Hastings & Co.) for Respondent. IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION CIVIL APPEAL NO.2 OF 1969 ----------------- (On Appeal from O.J. Action No. 2212 of 1966)
Coram: Blair-Kerr & Williams, JJ. Date of Judgment: 2 June 1969 ----------------- JUDGMENT ----------------- Williams J. 3. Defag Construction Company (hereinafter called the principal contractor) agreed to construct a 16 storey building for the appellant, Tak Ming Company (hereinafter called the owner). The contract made on 27th October 1964 was for a fixed price of $4,692,000. 4. On 20th January 1965 the principal contractor negotiated a sub-contract with the respondent herein whereby the latter agreed to do all the reinforced concrete work and to supply the necessary steel bars. In the original proceedings the sub-contract was referred to as the Chinese contract. 5. The owner was to pay the principal contractor in 41 instalments against architect's certificates issued at agreed stages as work progressed. To ease the initial financial burden upon the owner no payment became due under the principal contract until foundation work and the construction pile caps to the value of $700,000 was completed. That $700,000 was then to be spread over the 41 payments. Payment to the principal contractor for the R.C.C. work was to be completed, less certain retention money amounting to 25%, by the time the 17th certificate had been issued. 6. Under the sub-contract the respondent received $100,000 on completion of certain steel work in the foundations; thereafter he was to get 10 payments of $50,000 and 10 of $45,000. Those 20 payments were tied to the first 20 payments due to the principal contractor under the principal contract. Therefore although the respondent would complete the R.C.C. work by the time the 17th certificate was issued, he would not be paid in full until the issue of the 20th certificate. That arrangement obliged the respondent to wait until the principal contractor performed stages 18, 19 and 20 before the respondent would receive his last payments under the sub-contract. There was to be a final adjustment of the sub-contract price according to the weight of steel rods supplied by the respondent. During the course of construction the above rates of payment to the respondent were slowed down and reduced by agreement. 7. The judgment indicates that the respondent received $884,000 and that $1,220,000 payable under the sub-contract was not a fixed sum, but would be adjusted according to the weight of steel supplied by the respondent for the R.C.C. work. 8. Shortly after he undertook the sub-contract the respondent met the owner at the Mandarin Hotel. Soon after that meeting the respondent wrote to the owner on 5th February 1965 asking for certain assurances in connection with the continuation of and payment for his work under the sub-contract in the event of the principal contractor being unable to complete. On 9th February 1965 the owner replied in terms which the respondent appeared to accept as safe-guarding his interests. 9. When the building was near completion the owner terminated the principal contract as from 3rd September 1966. On 5th July 1966 the respondent had completed his sub-contract, except for a fragment which the owner would not allow him to do, but because of the delayed method of payment he had not been paid in full. 10. Relying upon the exchange of letters of 5th February 1965 and 9th February 1965 between himself and the owner, the respondent successfully sued the owner for the balance due to him for the work done etc. under the sub-contract. 11. The all important letters are as follows:-
Tak Ming Middle School at K.I.L.1571, S.A., 76, Sai Yee Street, Kowloon.
12. The respondent successfully contended that the owner's letter promised that should the principal contractor be ousted, and the respondent not permitted to complete his sub-contract, then the owner would pay him for the work already completed, as certified by architect's certificates. 13. Before the principal contract was terminated by the owner in September 1966, the architect had issued the 17 certificates relating to the completion of the R.C.C. work. The respondent claims that that fulfills the conditions contained in the owner's letter of 9th February 1966 and entitles him to payment by the owner of the balance due under the sub-contract. 14. No architect's certificates had been issued to cover the 20th, 21st and 41st instalments payable under the principal contract. A re-arrangement of payments under the sub-contract had slowed down payments under the sub-contract, but had provided that the respondent would receive $230,000 on issue of the 41st certificate which would occur after the occupation permit had been received. The building was completed and the occupation permit issued not long after the principal contractor was ousted from the site. 15. In the court below the owner contended that his letter of 9th February 1965 merely promised payment, for work completed under the sub-contract, from monies allocated to the principal contractor against issued architect's certificates. He submitted that at the time the principal contractor was ousted there were unissued certificates relating to work which the principal contractor had not completed. Therefore it was not possible to release any more money to the principal contractor's credit until he finished the building, but that was now impossible because the principal contract was at an end. Since the respondent's final payments were to have been made out of the principal contractor's final instalments it was not possible to pay him, although he had completed the R.C.C. work. 16. The judgment says that the owner's promise to pay the respondent for the work he had done under the sub-contract, in the event of the principal contractor being dismissed, could only refer to work done by the respondent. He referred to para. 2 of the owner's letter which says that payment to the respondent would be against the architect's certificates issued under the principal contract, and said that the certificates so issued covered the whole of the R.C.C. work under the sub-contract. 17. The judge found that the owner's letter promised that if the principal contract was terminated, and if the owner did not permit the respondent to continue with the R.C.C. work, then the owner would pay the respondent for the R.C.C. work already completed under the sub-contract, provided it was embraced by certificates already issued under the principal contract. On that interpretation he gave judgment for the respondent. 18. The first ground of appeal complains that the judge erred in law in finding that the exchange of letters resulted in the owner undertaking the principal contractor's obligations to the respondent under the sub-contract. The letters show quite clearly that there was no such wholesale taking over by the owner from the principal contractor. It is clear that the judgment contains no such finding. If the owner was taking over the principal contractor's reponsibilities the latter would surely have been a party to his release from such obligations. There is nothing to suggest that he was. The judge found that the owner had promised that if he ousted the principal contractor from the site, he would in that event pay the respondent for work he had already done. Mr. Litton, for the owner, argued before us that it was not logical to interpret his letter as saying that whatever is owed under the sub-contract is to be paid by the owner, because it would mean that the owner had stepped into the shoes of the principal contractor. The judge in my opinion merely said that the owner promised that if anything was owed to the respondent he would pay it, on conditions contained in that letter. I see no point in pursuing that ground of appeal any further. 19. The second ground complains that the judge failed to give sufficient weight to the fact that the owner's reply was in answer to specific requests made by the respondent's letter of 5th February 1965. In that connection it is worth noting that the judge refers very frequently to requests and replies between pages 42 and 50 of the record. At p.43 he considered the argument of Mr. Litton that the respondent's letter of 5th February 1965, simply requested that if the owner ousted the principal contractor, and if money had already been allocated to the principal contractor following the issue of a certificate, then the owner should pay the respondent from such monies. Mr. Litton's argument, quoted at p.46 of the record, is that the owner's reply of 9th February 1965 was simply his agreement to that request. If that is the correct approach then I feel that the exchange of letters was unnecessary and superfluous because an arrangement of that nature was already being negotiated. It came into existence by way of a letter dated 8th February 1965 from the principal contractor to the owner's solicitors authorising them to pay the respondent's instalments from monies credited to the principal contractor under the principal contract. As the judge commented at p.40 of the record, that arrangement contemplated that the principal contractor would remain on the site until the building was completed. However, the letters of 5th February 1965 and 9th February 1965 contemplated the principal contractor being ousted from the site and raised the question of the respondent being paid for the work he had done in the event of such an ouster. The judge very carefully considered the evidence of the respondent and the owner as to what they meant in their respective letters. There is no point in my going into that portion of the judgment in detail; the counsel for the appellant (owner) and respondent covered it very exhaustively. It is sufficient to say that the judge remarked at p.50,
20. Mr. Litton submitted that the judge should have construed the two letters in the light of the surrounding circumstances existing at the time. It is clear from the above quoted passage that the judge at least purported to be doing that very thing. 21. In that connection the judge had said, at p.50 of the record:-
He considered evidence as to the financial strain on the owner who was trying to finance the entire project. He found as a fact that at the time the letters were exchanged the owner was anxious that the respondent should not withdraw from the R.C.C. contract, but should continue because the respondent was in some measure financing the sub-contract which eased the financial strain on the owner as well as the principal contractor. 22. Mr. Litton argued on the appeal that the evidence of financial stress, relied upon by the judge in construing the parties' intention at the time the said letters were exchanged, was not apparent in February 1965. He said that it was not until July 1965 that the owner had cause to concern himself with sub-contracts because of financial difficulties. However, in cross-examination the owner said that by January 1965 it was apparent that the principal contractor was in serious financial difficulty; that on 21st January 1965 all work on the site had ceased and that the delay was costing the owner money. The principal contractor did not have the money to continue with the next phase of the construction under the principal contract which was the R.C.C. work. It was for that reason that he sub-contracted it to the respondent. It would seem that, contrary to Mr. Litton's argument, the owner had reason to be anxious over the lack of progress in building and over the mounting costs including accumulating interest on money he had borrowed. It was in those circumstances that the respondent, who was as concerned with the principal contractor's ability to pay as was the owner with his ability to perform the contract, wrote to the owner on 5th February 1965 and received the reply of 9th February 1965. 23. There was in my opinion ample evidence to support the judge's finding of fact that the owner was very anxious that respondent should continue with the sub-contract. 24. In my view the second ground of appeal is not made out. 25. In the third ground of appeal the owner alleges that the judge failed to give effect to the legal relationship between the owner, the principal contractor and the sub-contractor. A vague statement of that nature covers such a speculative field that one wonders what particular aspects of those legal relationships the judge had overlooked. One should not be left wondering and the grounds should be more specific. Does it mean that certain rights were not assignable, or that obligations imposed under one contract could not be assumed in another, or that privity of contract can never exist between the sub-contractor in a building contract and the person for whom it is being constructed? The respondent never suggested that privity of contract existed between the owner and he on the basis of the sub-contract. The respondent alleged a separate contract between the owner and he to which the principal contractor was not a party. That agreement differed from the sub-contract which contemplated performance in full of the principal contract; it was a separate arrangement which contemplated a failure on the part of the principal contractor to fulfill his obligation. 26. Mr. Litton, in the course of the appeal posed the question as to what the owner was going to get out of this agreement with the sub-contractor. He pointed out that the owner was unlikely to accept liabilities which he had not contracted for. One can only reply that if there was an agreement established by the exchange of letters then he was in fact undertaking such liabilities as it contained. One benefit the owner was getting out of it was the assurance that the R.C.C. work would be done by the respondent and the necessary steel supplied by him at a time when the financial climate was non too satisfactory. The judge at p.52 referred to authorities, which I will not again quote, to support the proposition that the consideration moving to the owner from the respondent was the latter's implied promise to perform, for the benefit of the owner the obligations which the respondent owed to the principal contractor. He went on to state that such reliance on an implied promise of that nature was not necessary in that the respondent was in a position to plead actual performance. Mr. Litton did not criticise or reject those references as fallacious. There is no reason to suppose that the judge failed to bear in mind or give effect to the legal relationships. In fact in quoting his judgment earlier I referred to:-
27. The fourth and last ground of appeal, i.e. in the additional grounds of appeal, is also vague. It states that the judge failed to give a proper construction to the contract between the owner and the principal contractor of 27th October 1964 which was for a lump sum. The ground of appeal should have been followed by words such as "... in that ..." and then setting out what important construction had been omitted. The judge was fully conscious that the principal contract was for a lump sum and he mentioned the exact figure. 28. Mr. Litton argued during the appeal that the owner having fixed a price, would be unlikely to increase his expenditure by taking upon himself the liability to pay the respondent an unspecified sum under the sub-contract. The owner was not, as the judge pointed out, assuming the principal contractor's liabilities to pay the respondent under the sub-contract. He was merely promising to pay the respondent for R.C.C. work he had done if the principal contract was halted. The indeterminate feature was the weight of steel used. However the owner was only paying the principal contractor for 75% of each instalment of the work certified by the architect. The remaining 25% was to be retained until after issue of the occupation permit. Any liability of the principal contractor assumed by the owner would be considerably offset if not completely covered by the 25% retention money. 29. Mr. Litton put forward the theory that since the contract was awarded by tender, the principal contractor could have greatly overcharged for the earlier stages so as to quickly get hold of a major portion of the contract money, and he could have offset those high prices by greatly undercharging for the final stages. Such an arrangement would make it most hazardous financially for the owner to determine the contract at a late stage in the programme because he would have to pay proper prices for the undercharged stages to a new builder. There is no evidence that such was the position. In fact the evidence points to words reducing the owner's rate of payment in the early stages, apart from the unduly high retention of 25% of each instalment as opposed to the customary 15%. 30. The owner argued that under the principal contract no payment could be made without an architect's certificate no matter who had done the work, be it the principal contractor or the sub-contractor. 31. It is true that once the principal contractor was ousted from the site the principal contract was terminated. Its existence could only be referred to in order to explain or prove what should have been done according to its terms and what should have been paid under it prior to its cesser. The rights of the respondent against the principal contractor at that date are decided under the sub-contract. In this case the respondent successfully pleaded in the court below that he was not relying on the sub-contract to try and determine the liability of the owner, but upon a separate agreement with the owner contained in the letters of 5th and 9th February 1965. 32. If the principal contractor had been allowed to complete the building he would have received the agreed price. From those payments the respondent's instalments would have been paid by the owner's solicitors on the authority given to them by the principal contractor. Had the principal contractor been ousted when the R.C.C. work was only half completed the owner would have had to decide whether to let the respondent complete it, with or without another principal contractor. If he had permitted the respondent to complete the remaining half of the R.C.C. work he would still have had to pay him for it. If he dismissed the respondent he would have to pay someone else to complete it. In any event, in those circumstances, he would have to pay for the whole of the R.C.C. work, whether or not there was a principal contractor on the site to whom architect's certificates could be issued. The one way in which the owner might feel legally justified in not paying for all the R.C.C. work, would be to oust the principal contractor after the R.C.C. work had been done and before the building was constructed, and then argue that there was no principal contractor to whom an architect could issue his certificate. 33. I find it difficult to perceive the moral justification for attempting to seize upon such a state of affairs as a reason for refusing to pay the respondent. 34. There is no substance in the fourth ground of appeal. 35. The original ground of appeal was that the judge's findings were against the weight of the evidence. The judge considered all the evidence very carefully and anxiously considered its implications and the weight to be attached to it. The construction he placed upon the two letters followed a searching scrutiny of them, and of the other documentary evidence in the light of the contracts between the principal contractor and the owner, and the principal contractor and the respondent, and with full regard to all the surrounding circumstances. 36. There could be no justification for disturbing his findings.
-2 JUNE 1969 |
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