Shun Tat Engineering (HK) Ltd v. Harvest Time Engineering Ltd
Read the full judgment text of DCCJ 3578/2014 on BabelCite. This District Court judgment was delivered on 19 February 2016.
1. This is the trial of the Plaintiff’s claim against the Defendant for an unpaid sum of $300,000 due and owing under a settlement. The Defendant contends that it has already been settled by its cheque which the Plaintiff says being paid to settle another debt.
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DCCJ 3578/2014 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 3578 OF 2014 ________________
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______________ J U D G M E N T 1.This is the trial of the Plaintiff’s claim against the Defendant for an unpaid sum of $300,000 due and owing under a settlement. The Defendant contends that it has already been settled by its cheque which the Plaintiff says being paid to settle another debt. Brief Background 2.The Plaintiff is a construction company undertaking works such as installation of aluminium panels, steel structures and glass curtain etc. The Defendant is also a construction company and has subcontracted works to the Plaintiff in various projects. It is not in dispute that the Plaintiff has been the Defendant’s subcontractor in the following 4 projects, namely,
3.Regrettably they have disputes over each and every of the above. The dispute in the Cruise Terminal project was settled in the Small Claims Tribunal while the remaining 3 end up in the District Court. 4.The present dispute, however, is rather simple according to the parties’ pleadings, and apparently concerns basically the HKSI project. 5.According to the parties’ pleadings, the parties have come to a compromise on the final accounts between them in respect of the HKSI project. By an agreement dated 12 March 2014 signed by them on 13 March 2014, the Defendant agreed to pay the Plaintiff a total sum of $930,000 by 4 instalments according to the following schedule (“Settlement Agreement”):
6.It is the Plaintiff’s case that all except the 1st instalment under the Settlement Agreement, though being late, have been settled. Accordingly by the present proceedings the Plaintiff sues the Defendant for $300,000 being 1st instalment outstanding under the Settlement Agreement. 7.It is not in dispute that on 11 April 2014 the Defendant’s director Mr LUO Yu Hui, also known as Terry LUO handed to a Mr KWOK Wing Chung, a director of the Plaintiff, a cheque (No.320763) dated 15 April 2014 drawn on Bank of China Hong Kong in favour of the Plaintiff for a sum of $300,000 (“the said cheque”). The said cheque was cashed on 15 April 2014. The Plaintiff said that the said cheque was to settle another invoice of the Plaintiff dated 22 February 2014 issued to the Defendant in respect of the Vita Green project (“remedial work invoice”). 8.The Defendant’s defence is that the said cheque was paid to settle the 1st instalment under the Settlement Agreement. The Plaintiff has no entitlement or right to use the said fund to settle any other sum[1]. The remedial work invoice, though issued, is not meant to be settled but for a particular purpose. 9.It is revealed in Mr Kwok’s witness statements of 15 May 2015 that he protested when the said cheque was given to him by Mr Luo. He specifically said it was for settlement of the remedial works invoice and Mr Luo agreed by replying that the money for the HKSI project would be forthcoming next week. 10.On the other hand, according to Mr Luo’s statement dated 1 June 2015, he basically said the said cheque was to settle the 1st instalment of the Settlement Agreement. Mr Kwok had never said that payment was for any other debts. 11.It was explained in Mr Luo’s statement that the contractor working for the Defendant in the Vita Green project was sub-standard. The Defendant therefore asked the Plaintiff to take over that subcontractor’s work which the Plaintiff agreed. The Defendant asked the Plaintiff to issue an invoice to enable it to claim against the said subcontractor. It seems that Mr Luo was suggesting the said remedial work invoice of the Vita Green project was meant to be settled only upon actual and successful recovery. In the last paragraph of the said statement Mr Luo said[2]:
12.From the above, it is apparent that the principles relating to appropriation of payment are relevant. There is also serious dispute of facts. The Law on Appropriation of Payment 13.The law on appropriation of payments is rather settled. The learned authors of Chitty on Contracts (32nd ed) Vol. 1 Sweet & Maxwell at §§21-062 to 21-064 have succinctly summarized the relevant principles on appropriation of payments:
14.It is the debtor (in the present case the Defendant) who has a right of appropriation when he tenders his money for settlement of his debts. It is not for the creditor (i.e. the Plaintiff in the present case) to disagree, unless in the course of their negotiation the debtor has changed his mind and acceded to the appropriation proposed by the creditor in a clear and unequivocal manner. Further, when making payment, it is not essential for the debtor to expressly state his appropriation. His appropriation can be inferred from the circumstances at the time of payment. Both counsel relied on the aforesaid paragraphs of Chitty. Evidence of the Parties 15.There is factual dispute on whether, and if so, what appropriation has been made when the said cheque was given to Mr Kwok by Mr Luo on 11 April 2014. The finding of facts in this respect one way or the other will conclusively dispose of the cause. 16.At the pre-trial review I raised to the Plaintiff’s counsel why, in light of the defence raised by the Defendant, the alternative claims against the Defendant was not issued at the same time. No satisfactory answer had been provided. As claim on the alternative debt (i.e. the sum due under the remedial works invoice) is not before the court, in the event the court finds against the Plaintiff it will be necessary for it to issue a new set of proceedings if it wants to pursue the said remedial works invoice, though the parties are, to a certain extent, bound by the facts they have ventilated in the present proceedings. 17.Only Mr Kwok and Mr Luo have testified at trial. Each of them has made a prior written witness statement and relied on them as their evidence in chief. They were also allowed to supplement their statement with oral evidence and were cross-examined. 18.It is worth mentioning that at the start of the trial, the Defendant applied to put in additional documents comprising pleadings, a consent order in DCCJ3576/2014 suing on 2 invoices in the Vita Green project and the said 2 invoices. It is noted that the said 2 invoices are not the same as the remedial works invoice. These last minutes documents are irrelevant by reference to the pleadings and witness statements. After hearing Miss Lai’s submission, it was considered their introduction amounted to raising an additional defence. Substantial top-up of evidence to explain the said 2 invoices would be necessary. These documents and additional evidence could have been put in earlier and no acceptable explanation had been given. The application was rejected. Evidence of Mr Kwok Wing Chung 19.Mr Kwok’s evidence, in summary, is this. In respect of the Vita Green project, the Plaintiff was asked to provide services under 2 separate contracts under the following circumstances:
20.The remedial works contract was completed on 21 February 2014. In the morning of 22 February 2014, he, according to usual practice, issued an invoice for $300,000 to 3 representatives of the Defendants, namely, the aforesaid Mr Luo, Mr Kevin Chan who he identified to be the boss and a Mr Ken Wan, the site-in-charge of the Defendant[3]. This is the remedial works invoice referred to above. It is Mr Kwok’s case that Mr Ken Wan was the Defendant’s key site supervisor responsible for the overall arrangement of works and giving approval to payment. All invoices and wage submissions needed be signed by him before the Defendant would accept payment liability. 21.In the afternoon of 22 February 2014 he brought with him a copy of the remedial work invoice to the Vita Green Plant and met Mr Ken Wan. He then toured around with Mr Ken Wan to inspect the work already done in respect of the remedial work contract. This invoice was signed by Mr Ken Wan to signify completion of works under the said contract[4]. The date “22/2/2014” was also written on the invoice by Mr Ken Wan at the same time. He said Mr Ken Wan made no remark when signing the invoice. 22.He explained that the Plaintiff experienced prolonged delay in getting its invoices settled by the Defendant. As such he issued the invoice as soon as work was finished, and chased for payment after about a month. He considered the 1-month deadline, though imposed by him unilaterally, was reasonable. 23.During cross-examination, he explained that for the lump sum remedial works contract the Plaintiff had to provide labours, machines, tools and consumables such as welding materials, electric cutter blades, etc. For the substitute workers contract, all the Plaintiff needed to do was to supply labours to the Defendant. These workers would then work under the Defendant’s directions, not the Plaintiff’s. Tools and materials would be provided by the Defendant. The difference between the rate agreed between the parties and that actually paid to a worker by him was his profit under the substitute workers contract. 24.It is Mr Kwok’s case that contract price under the HKSI project had remained unpaid for a long time. The Plaintiff had finally agreed with the Defendant on a final account after very tough negotiation. He had to spend 2 whole days in the Defendant’s office in Fotan before coming to the said compromise with substantial concession on his part. 25.On or about 11 April 2014, he had a talk over the phone with Mr Luo. He was asked to go to the site of the Federal Project at Lockhart Road. He understood Mr Luo had to attend a meeting there that afternoon. He did not ask Mr Luo the purpose for which he was asked to go as there were still ongoing works to be done by the Plaintiff for the Defendant. Neither had he chased after Mr Luo for outstanding payments during those conversations nor had Mr Luo mentioned anything about payment. He therefore thought that the meeting might be work-related, though he expected that some overdue payments would be settled. 26.When they met at about half past four on 11 April 2014, he was given the said cheque. He was asked to acknowledge receipt on a photocopy of that cheque. He immediately rose to anger and asked why there was only one cheque but not two. He said Mr Luo replied to the effect that the Defendant was then out of fund, and hoped the Plaintiff understand Defendant’s situation. Mr Kwok then raised that the said cheque would be for payment of the Vita Green project. He wrote on the cheque photocopy “此款項是付維特靈藥廠執鐵工程”, meaning “the money was for payment of the Vita Green Pharmaceutical Plant iron remedial works”. He admitted he did not asked for similar acknowledgement by Mr Luo to him to the same effect. 27.At the same time he asked Mr Luo when the HKSI project payment would be paid. Mr Luo’s replied was that it would be paid a few days later. He specifically denied that Mr Luo has particularly said the cheque was for settlement of the HKSI project. 28.During cross-examination, he explained that he insisted the payment should be on Vita Green project because he did not want to repeat the bitter experience of finalizing the Vita Green project account as he did in the HKSI project. Since the remedial works invoice had already been endorsed by Mr Ken Wan, he preferred that to be settled first as the Defendant had the habit of delaying, deducting and discounting his contract sums. 29.He agreed to suggestions during cross-examination that prior to 11 April 2014, he might have telephone conversations with Mr Luo. He replied that it was not he who called Mr Luo and it was the other way round. He insisted he had not asked the purpose of the meeting on 11 April 2014. Neither had Mr Luo spelt out the purpose of the meeting. He accepted during cross-examination that before the payment of the said cheque, the Defendant at least owed the Plaintiff: (i) $300,000 under the Settlement Agreement; (ii) $300,000 under the remedial works invoice; (iii) $90,000 odd under the substitute workers contract; and (iv) payments under the Federal project. 30.He admitted at the time of the Settlement Agreement, his relationship with the Defendant was poor, and his experience dealing with the Plaintiff on payments was bitter and frustrating. Under cross-examination, he said he had no re-collection that between 7 and 9 April 2014 that Mr Luo mentioned repayment of the HKSI debts. However, he recalled Mr Luo did mention other debts. On the other hand he said he had chased after the Defendant for outstanding payments almost every day as the Defendant owed him a lot of payments (我差不多日日追數 … 他差我好多數[5]). 31.It was not in dispute that the said cheque was post-dated 15 April 2014, and was cleared on the same date according to the Defendant’s record. Mr Kwok said he did not mind it being post-dated. What he minded was the Defendant did not bring 2 cheques. 32.As payment was not forthcoming a few days later, he instructed a firm of solicitors to issue a demand for the first instalment under the Settlement Agreement. It was issued on 5 May 2014. By a letter dated 8 May 2014, the Defendant denied. It was said that the cheque of 11 April 2014 was in settlement of the 1st instalment under the Settlement Agreement. 33.He denied suggestion by Defendant’s counsel that the remedial works contract and the substitute workers contract were one and the same contract. He also disagreed that the remedial works invoice was for “window dressing” purpose not intending to be settled by the Defendant but was for the latter to pressing for compensation from the defaulting contractor. Evidence of Mr Luo Yuhui also known as Terry Luo 34.Mr Luo is a registered architect by profession and is the Defendant’s director. He is also project director of the Defendant. 35.He said 2014 was a bad year for him. His business partner and many key employees left the company that year. He was busy and in financial difficulties though he managed to survive. It was his evidence that around 12 March 2014, the parties reached a compromise on the final accounts in respect of the HKSI project after Mr Kwok refused to leave his office unless there was a promise for payment. The 1st instalment thereunder was due on 10 April 2014. 36.It is his evidence that on 7 and 9 April 2014, Mr Kwok phoned him chasing for the first instalment under the Settlement Agreement. On 10 April 2014, Mr Kwok called him again chasing for the same. As his partner had already counter-signed the said cheque he asked Mr Kwok to go to the Federal Building site on 11 April 2014 to collect the cheque as he would be attending a meeting there. He denied Mr Kwok’s suggestion that it was he who called Mr Kwok. All phone calls were made, according to Mr Luo’s evidence, by Mr Kwok. 37.When they met on 11 April 2014, he handed to Mr Kwok a cheque of $300,000. It was a short meeting. Although it was stated in paragraph 11 of his statement that there was not much discussion during the meeting, he supplemented at trial that in fact Mr Kwok queried why the cheque was post-dated. He said this was Mr Kwok’s only complaint. He explained that money had not yet arrived, but would be available in the following week. He asked Mr Kwok to be considerate of his company’s situation. He stressed that apart from chasing him for the HKSI project payment, Mr Kwok did not mention payments relating to other projects during the telephone conversations on 7, 9 and 10 April 2014. When they met on 11 April 2014, apart from the HKSI debts he said Mr Kwok mentioned no other debts. Neither had he himself mentioned other debts on that occasion. He said naturally the said cheque should be for the HKSI project which Mr Kwok had chased for a few days before the payment. 38.He denied having signed on any photocopy of the said cheque as alleged or at all. He forgot to bring any copy of the cheque with him on 11 April 2014. However, his secretary had marked on the cheque stub that the said cheque was for the HKSI project.He regretted that he had not submitted the same as evidence earlier as he did not think it important. 39.He said immediately upon receipt of the Plaintiff’s demand dated 5 May 2015 through its solicitors, he was surprised to note that the money had been appropriated to another invoice which was not meant to be settled. He immediately sent a Wechat message to Mr Kwok expressing his shock. Again he said he did not realise the importance of such exchange and therefore not printimg out the exchanges. He replied by its letter of 8 May 2014 reiterating the first payment under the Settlement Agreement had already been settled by the said cheque handed to Mr Kwok on 11 April 2014. 40.After the receipt of the said cheque of $300,000, he said Mr Kwok started to chase after him for money in respect of the Vita Green project in mid-April before issue of the solicitor’s letter of 5 May 2014. 41.He denied having told Mr Kwok on 11 April 2014 that payment for HKSI would be forthcoming next week as alleged. All he said was to ask Mr Kwok take the post-dated cheque first, and the money would be available next week. 42.Concerning the remedial works invoice in respect of the Vita Green project his evidence at trial can be summarized as follows:
Discussion 43.The two witnesses have given factual evidence that is diametrically different. Determination of these disputes hinge on credibility of these witnesses. Although much time has been spent on the evidence concerning the validity or otherwise of the remedial works invoice, the primary issue, in the court’s judgment, is whether the Defendant has through Mr Luo made a valid appropriation when he tendered the said cheque to satisfy a debt. In the court’s view, if this court rules in favour of the Plaintiff on the primary issue, that will be the end of the matter. However, if the court rules against the Plaintiff on this primary issue, this court should avoid making finding of facts touching on the remedial works invoice, unless it is absolutely necessary for determination of the case. It is because claim in respect of the said invoice will very likely form the subject matter of another claim which is presently not before the court. 44.When assessing whether to accept one’s evidence, this court will take into consideration undisputed or unchallenged facts or contemporaneous documents, witness statements filed prior to the trial and weighing the witness’ evidence as a whole against the overall background and context. 45.It is Mr Kwok’s case that the Defendant is habitually late for payment. According to him, payments were always deducted without good ground. He had a bitter experience finalizing accounts with the Defendant particularly on the HKSI project. The fact that it was stated in said Settlement Agreement the Plaintiff would not allow further claims from the Defendant, and the Defendant would not deduct any further project payment from the Plaintiff shows how eager the Plaintiff would like this to be safe-guarded. Since the Defendant was then in financial difficulty, he had to chase after the Defendant for outstanding payments very often, and had done so almost on a daily basis[6]. This court accepts these as facts. It was the reality of their relationship at the material times. Around 11 April 2014, this court accepts that in Mr Kwok’s view the Defendant owed him at least the money he mentioned in paragraph 29 above. 46.Against the aforesaid backdrop, it would appear strange that Mr Kwok did not call Mr Luo on 7 and 9 April 2014 when the deadline for the 1st instalment of the Settlement Agreement was drawing near, and on 10 April 2014, when the payment fell due. It would appear even more unbelievable when they engaged in telephone conversation (this is not in dispute), he did not chase for repayment of any debts, not to mention that the said 1st instalment was falling due imminently. He evidence offends common sense judging from the relationship depicted by him. 47.Is it not Mr Kwok’s case that he always has to chase after the Defendant for outstanding payments? Even assuming (without accepting) that he had not called Mr Kuo, would it be too awkward for him to talk about outstanding payments when he received calls? It is Mr Kwok’s evidence that he did not talk about the HKSI payment during the several telephone conversations initiated by Mr Kuo. Given the fact that the 1st payment under the HKSI Settlement Agreement covers payment which, according to Mr Kwok, have been discounted and overdue for a long time, the allegation that he did not call Mr Kuo nor mention anything about this on 7, 9 and 10 April 2014 when Mr Luo called is, unusual and unbelievable in the circumstances. 48.On the other hand, Mr Kuo’s evidence on what happened around 11 April 2014 appears, on a balance of probability, more reliable. His evidence fits in more with the reality of their relationship. They were not on very good terms as, because of the Defendant’s financial difficulty and internal problem, payment was always lagging behind. Naturally, closer to the due date on 10 April 2014, it would be more likely than not that Mr Kwok would, as he usually did, make phone calls chasing after payment due under the Settlement Agreement. 49.This court accepts as facts that on 7, 9 and 10 April 2014, as alleged by Mr Kuo, Mr Kwok called him chasing for the 1st instalment payment under the HKSI Settlement Agreement; and he asked Mr Kwok to meet on 11 April 2014 to collect payment. The said cheque was given to Mr Kwok by Mr Kuo on 11 April 2014 in the circumstances described by Mr Kuo. On a balance, this court believes that apart from complaining the cheque being post-dated, they did not discuss other matters. Neither had there been any discussion between them applying the cheque to the remedial works invoice or other project as alleged by Mr Kwok or at all. 50.Applying the principles of appropriation set out above, as Mr Kwok was asked to collect a cheque issued pursuant to his repeated chasing for payment under the Settlement Agreement, the intention on the part of Mr Kuo intending the money to pay off that debt is clear and unequivocal. The circumstances under which the cheque was paid are such that the cheque was to settle a debt repeatedly chased after on 7, 9, and 10 April 2014 over the phone by Mr Kwok. This court accepts, as a matter of fact, there was no protest by Mr Kwok that the cheque would be for the remedial work invoice as alleged or at all on 11 April 2014. The only protest was the cheque being post-dated, but the cheque had not been rejected. It was cashed on 15 April 2014. There should not have been any misunderstanding between the parties as to the purpose for which the said cheque was paid in the circumstances of this case. The debtor’s (i.e. the Defendant’s) right of appropriation has not been lost or given up in the course of their conversation. This Court does not believe that there was any protest on the part of Mr Kwok resulting in his choice of appropriation being acceded to by the debtor as alleged or at all. 51.By reasons of the above, it would be unnecessary for this court to determine the validity of the remedial works which, this court believes, is highly controversial. Disposal 52.The Plaintiff’s claim is hereby dismissed. There is an order nisi that the Plaintiff is to pay the Defendant’s costs of the action together with certificate for counsel, such order nisi be made absolute if within 14 days there is no application to vary the same.
Miss Zoe Ning instructed by Jan Fung & Co, for the Plaintiff Miss Annie Lai instructed by So, Lung & Associates, for the Defendant |