Eu Asia Engineering Ltd. v. Wing Hong Contractors Ltd.

CACV000029/1992

IN THE COURT OF APPEAL

1992, No. 29
(Civil)

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Coram: Hon. Fuad, V.-P., Penlington and Nazareth, JJ.A.

Dates of hearing: 17, 18 September 1992 and 26, 27, 28 January 1993

Date of handing down judgment: 10 March 1993

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J U D G M E N T

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Penlington, J.A.:

1. This is the judgment of the Court.

Background

2. The appellant, Wing Hong Contractors Limited ("Wing Hong"), the defendant in the court below, was the principal contractor engaged by the Hong Kong Housing Authority ("the Authority") to carry out substantial building works known as Phase 7, Tsui Ping Estate, Kwun Tong, pursuant to a contract of the 31st March 1988. By a further contract dated the 22nd December 1988 ("the sub-contract") Wing Hong sub-contracted with the respondents, Eu Asia Engineering Limited ("Eu Asia"), the plaintiff below, to carry out the concreting work for the project which involved concreting walls and floors using steel and timber formwork. Culminating on the 6th May 1989 certain events took place which have given rise to a claim by both parties that each has repudiated the sub-contract. Eu Asia claimed for the price of work done and for damages for the alleged wrongful repudiation by Wing Hong and Wing Hong in turn counterclaimed for damages for what they say was the cost of completing and remedying Eu Asia's work.

3. The matter was heard before Kaplan, J., on 12 working days in November 1991 and by a judgment dated the 23rd December 1991 he found in favour of Eu Asia, awarding them the sum of $273,497 in respect of the value of work done at the date of the termination of the contract together with the sum of $1,300,000 in respect of loss of profit. He dismissed Wing Hong's counterclaim. Before us it was agreed that Kaplan, J., had made an error in calculating the sum awarded for loss of profit and, if payable, it should have been somewhat less.

Liability

4. It is the main ground of appeal that the trial judge took a wrong view as to the credibility of the evidence given by the witnesses for Wing Hong, and in particular, Mr. Vincent Ho, Wing Hong's project manager. Mr. Peter Graham, who appeared in this Court for Wing Hong but not below, acknowledged that this placed a very heavy burden on Wing Hong. There is no need to go into the authorities setting out the principles upon which an appeal court should interfere with a finding below based on the trial judge's assessment of the credibility of witnesses as they are set out cogently by Fuad, V.P., in The Hongkong and Shanghai Banking Corporation v. Chan Yiu Wah and Anr. [1988] 1 HKLR 457. Although he was delivering a dissenting judgment, these principles are now settled law. Fuad, V.P., cited the speech of Lord Summer in S.S. Hontestroom v. S.S. Sagaporack [1927] AC 37 at p. 47:

"What then is the real effect on the hearing in a Court of Appeal of the fact that the trial judge saw and heard the witnesses? I think it has been somewhat lost sight of. Of course, there is jurisdiction to retry the case on the shorthand note, including in such retrial the appreciation of the relative values of the witnesses, for the appeal is made a rehearing by rules which have the force of statute: Order LXVIII., rule 1. It is not, however, a mere matter of discretion to remember and take account of this fact; it is a matter of justice and of judicial obligation. None the less, not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it. If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge's conclusions of fact should, as I understand the decisions, be let alone."

At p. 50 Lord Summer said that the material questions were:

"(1) Does it appear from the President's judgment that he made full judicial use of the opportunity given him by hearing the viva voce evidence? (2) Was there evidence before him, affecting the relative credibility of the witnesses, which would make the exercise of his critical faculties in judging the demeanour of the witnesses a useful and necessary operation? (3) Is there any glaring improbability about the story accepted, sufficient in itself to constitute 'a governing fact, which in relation to others has created a wrong impression,' or any specific misunderstanding or disregard of a material fact, or any 'extreme and overwhelming pressure' that has had the same effect?"

That decision is relied on by Mr. Clayton who was counsel for the Eu Asia here and below.

5. While clearly an appeal court should be slow indeed to upset a finding of fact or even as to credibility, that does not mean it can never be done and Fuad, V.P., concluded his citation of the relevant authorities with dicta from the judgment of Lord Greene, M.R., in Yuill v. Yuill [1945] P 15 at p. 19 - 20:

"We were reminded of certain well-known observations in the House of Lords dealing with the position of an appellate court when the judgment of the trial judge has been based in whole or in part on his opinion of the demeanour of witnesses. It can, of course, only be on the rarest occasions, and in circumstances where the appellate court is convinced by the plainest considerations, that it would be justified in finding that the trial judge had formed a wrong opinion. But when the court is so convinced it is, in my opinion, entitled and indeed bound to give effect to its conviction. It has never been laid down by the House of Lords that an appellate court has no power to take this course. Puisne judges would be the last persons to lay claim to infallibility, even in assessing the demeanour of a witness. The most experienced judge may, albeit rarely, be deceived by a clever liar, or led to form an unfavourable opinion of an honest witness, and may express his view that his demeanour was excellent or bad as the case may be. Most experienced counsel can, I have no doubt, recall at least one case where this has happened to their knowledge. I may further point out that an impression as to the demeanour of a witness ought not to be adopted by a trial judge without testing it against the whole of the evidence of the witness in question. If it can be demonstrated to conviction that a witness whose demeanour has been praised by the trial judge has on some collateral matter deliberately given an untrue answer, the favourable view formed by the judge as to his demeanour must necessarily lose its value."

6. The work that Eu Asia was to carry out was making concrete floors and walls with the use of steel formwork. This steel formwork was constructed by a company called Far East Iron Works Ltd of which a Mr. Ng, a director and shareholder of Eu Asia, was also a director. It was however the responsibility of Wing Hong to supply the steel formwork and they entered into a contract with Far East Iron Works Ltd for its manufacture.

7. It is clear that progress on the work did not go as well as it might have. That is reflected in minutes of meetings between representatives of the Authority and of Wing Hong. At one such meeting held on the 17th March, attended by Mr. Vincent Ho on behalf of Wing Hong, it was recorded that the schedule for the completion of the concreting work was 5.5 weeks behind. "Honey-combing" had been found to be present and the concrete was not being properly cured. Wing Hong were asked to improve their quality control. It was also recorded that 27 days had been lost due to wet weather since the commencement of work. It was however also recorded that Wing Hong still were confident that the completion date of 15th November would be met without any problem and the delay would be overcome within 2 - 3 months. Delays had been caused by modification to the steel formwork and there had been a shortage of labour.

8. During April there continued to be complaints about honey-combing and curing and this was brought up at the monthly meeting with the Authority on the 20th April. It was recorded that Wing Hong had ordered more powerful electrical vibrators and promised to improve the standard of work. They promised to repair all honey-combed concrete before the end of April and on the 24th a letter was sent by Wing Hong to Eu Asia urging them to do the necessary repair work. On their side Eu Asia had complaints about payment and on the 2nd May they wrote to Wing Hong as follows:

Thank you for your settlement of $150,000 on 2/5/89 to our invoice no. 1118 for $229,774.01 dated 14/4/89, which indicates a difference of $79,774.01 and late settlement by 4 days. This will cause unnecessary difficulties to our cash flow for this project. We therefore, request your settlement for the difference within 3 days. Otherwise, we could not liable for any effects so caused.

Your kind attention will be appreciated."

That letter was strongly relied on by Wing Hong as being a threat to repudiate the contract if payment was not made, which threat was carried out during the following three days.

9. Two letters, both dated the 4th May, were then sent by Wing Hong to Eu Asia, on which again reliance is placed. One of these letters is in the following terms:

"Re: Contract No. 11 of 1988

Tsui Ping Estate - Phase 7, Kwun Tong Notice of Default

We note that, without notice or cause,

1. You have wholly suspended the Sub-Contract Works on 4th May, 1989 at 8 a.m.,

2. you have no workmen on site on 4th May, 1989.

This is a fundamental breach of contract. If you do not resume work by 8 a.m. on 5th May, 1989 you will be deemed to have repudiated the Sub-Contract. This repudiation, which we will accept, will entitle us to damages. Such damages will include (but not be limited to) liquidated damages of $20,000.00 per day payable to the Employer under the Main Contract."

Clause 3 of the sub-contract reads as follows:

"3. The Sub-Contractor shall send adequate and skilled workers to site in order to ensure that the progress of work for one whole storey can be completed within nine working days."

This was referred to in argument as the "9 day cycle". It was Wing Hong's case that due to the deficiencies of Eu Asia this 9 day cycle was not kept. This caused the delays in the contract. The trial judge found however that it was of crucial significance to that allegation that modifications to the steel formwork which was not Eu Asia's responsibility was not completed until well into March 1989.

10. The central issue was whether Eu Asia did send workers, or sufficient workers, to the site from the 3rd to the 6th May 1989 and that as a result was Wing Hong entitled to put up a notice on the 6th May stating that the sub-contract was terminated and that Eu Asia's workers were forbidden to enter the site. The sign put up by Wing Hong on the site on the 6th May read as follows:

"To whom it may concern

On instruction of the main office we officially terminate our contract with Eu Asia Engineering Ltd on the 6th May. Employees of Eu Asia Engineering Ltd are forbidden to enter the area of the construction site."

11. There seems to be no dispute that as a result of that notice while some of Eu Asia's workmen did remain on the site on the 6th and went there on the 7th, 8th and 9th May, Eu Asia did not do any more actual construction work on the site, but there was evidence they did some repair work.

12. On this central and key issue the question of the credibility of the various witnesses was obviously of the greatest importance. Kaplan, J. said in relation to this:

"Before considering each of the allegations upon which Wing Hong rely to justify their termination of the contract on 6th May 1989 it is necessary for me to say something about the credibility of the witnesses. I formed a favourable view of the witnesses called upon behalf of Eu Asia. Mr. Ng, the Managing Director, gave evidence mostly about the losses which he said Eu Asia suffered as a result of the alleged breach of contract. To this matter I will return later in this judgment.

Mr. Liu, the Managing Director of Wing Hong, alleged that all the main contract documents had been shown to Mr. Ng before he signed the sub-contract. Mr. Ng denied this. Mr. Ng told me that he had carried out many similar contracts without seeing the main contract. I prefer Mr. Ng's evidence on this point. The main contract contains price sensitive information which the main contractor would not like the sub-contractor to know about before he enters into the sub-contract. I reject Mr. Liu's evidence that he had shown Mr. Ng the main contract documents."

He went on:

" I found Mr. Ng to be an honest and straightforward witness and wherever his evidence conflicts with that of any of Wing Hong's witnesses I prefer Mr. Ng's evidence."

Wing Hong complain that this is too much of a "broad-brush" approach to the assessment of credibility. Kaplan, J., then went on to refer to other witnesses called by Eu Asia, who included Mr. Lee who was their project manager, about whom he said:

"I formed a very favourable impression of his honesty and veracity. Again where his evidence differs from that of Wing Hong's witnesses I much prefer Mr. Lee's evidence".

He also accepted the evidence of Mr. Yu who was the site foreman for Eu Asia and said that:

"Mr. Woo's lengthy cross-examination on Mr. Yu did nothing to dent his credibility as he emerged from it quite unscathed".

13. He also referred to the evidence of a Mr. Chan who was employed by Eu Asia as a steel foreman and was its concreting sub-sub-contractor. He said he was impressed by him as a witness of truth. Mr. Chan referred to delays on the site and said that they were caused by the modification to the steel formwork between January and March which was the responsibility of Wing Hong. Mr. Chan also went on to say that on the 4th May 1989 he attended a meeting at the offices of Wing Hong when Mr. Liu and Mr. Vincent Ho were present. Mr. Liu told Mr. Chan that he was going to terminate Eu Asia's contract and he asked whether Mr. Chan and another sub-sub-contractor would continue to work for him direct. Mr. Liu offered them both a contract on the same terms as the one they had with Eu Asia. Mr. Chan said that he eventually accepted this offer and did sign a contract on the 9th of May with Wing Hong. However a few days later he had second thoughts about what he had done and he terminated this new contract. This version was denied by Mr. Liu and Vincent Ho who said that there had not been any such approach to Mr. Chan prior to the 6th May 1989. About this Kaplan, J., said:

"I much prefer Mr. Chan's evidence and reject Mr. Liu and Mr. Ho's denial. Mr. Chan also confirmed that Eu Asia was not responsible for the delays that occurred."

14. The most important witness for Wing Hong was Vincent Ho. Kaplan, J., said in relation to his evidence that it

"was given in a very glib manner, but I have found substantial difficulties in accepting his evidence where it conflicts with Eu Asia's witnesses. There were 2 major problems with his evidence. Firstly, without telling anyone, he started giving his evidence by referring to a proof of evidence which he had prepared following a conference with Wing Hong's solicitors the day before. As soon as this was discovered Mr. Woo quite properly drew this matter to my attention and this statement was taken away from Mr. Ho and copied and given to the other side. This episode was unfortunate as all other witnesses' statements had been exchanged. He gave evidence from the undisclosed statement from 10:00 a.m. on Monday 11th November until 11:30 a.m. that morning when I took a short break.

Mr. Ho's statement which was exchanged was signed and dated 25th October 1991. However, Mr. Ho told me that he had made a statement shortly before he left Wing Hong in March 1990, and that he merely re-dated it on the 25th October 1991 for the purposes of these proceedings. In this statement he details the events of April and May 1989, but quite extraordinarily he omits to mention the events of the 6th May 1989 which was the crucial date. When pressed about this omission he responded that his secretary must have left it out and he had not noticed it. What is even more strange is that his statement goes on to deal with the 7th and 9th May and states that no one from Eu Asia was present or, if present, was not working. This is surprising given that it has always been Wing Hong's case that they had grounds on the 6th May to accept Eu Asia's repudiation of the contract and did accept it. If that had in fact been the scenario one is entitled to question the relevance of his detailing complaints against Eu Asia after the alleged acceptance of repudiation.

But perhaps the most troubling feature of Mr. Ho's evidence is in relation to the minutes of meetings between Wing Hong and the Authority. In a number of respects, these minutes support Eu Asia's case. Whenever these passages were pointed out to Mr. Ho he accepted that such statements appeared in the minutes but denied that the minutes accurately reflected what was happening on (and off) the ground. He told me that the minutes were for record purposes only and did not reflect what had been orally agreed with representatives of the Authority. I found this evidence quite disturbing and would not be prepared to accept it without some verification from the Authority. Wing Hong called no witnesses from the Authority to support Mr. Ho's version relating to the minutes nor Wing Hong's case generally. This was particularly surprising given that the Authority had an office on this very site."

In assessing credibility in order to reach findings of fact Kaplan, J., said that he placed great significance on contemporaneous documents in construction cases. This was because they had usually been prepared in good faith before any dispute had arisen. He said that in this case he was satisfied that all the contemporaneous documents until just before the crucial events of early May could be relied on. Kaplan, J., said that he found Vincent Ho's evidence unacceptable in many respects. He would rely on the Authority's minutes as accurately reflecting what was going on despite Mr. Ho's protestations to the contrary and

"When Mr. Ho's evidence conflicts with the witnesses called by Eu Asia I far prefer the latter's version of events."

Again this it is contended for Wing Hong is too sweeping an approach.

15. The trial judge has certainly come to very firm conclusions regarding the evidence given by Mr. Vincent Ho. We are however unable to find any convincing reasons that he was wrong to do so. We are satisfied that it was a matter for fair comment by the trial judge that Mr. Vincent Ho was using a statement in giving his evidence which had not been disclosed. It is quite true that this was a late witness statement and it may well be that he had not been told by solicitors or counsel that he should not use it in that way. There is however nothing in the judgment to indicate that Kaplan, J., regarded this as dishonest. He simply said it was a matter which affected Mr. Ho's credibility in that he was using a statement which had been only very recently prepared and Eu Asia were not aware of its contents. It was clearly a fact which the judge was entitled to take into account and we do not think that this incident was magnified by him in a way which was unreasonable. Clearly, however, there were other matters which did cause Kaplan, J., to have doubts about Mr. Ho's evidence. These were firstly that in he statement he detailed the events of April and May 1989 but omitted the events of the 6th May, which Eu Asia submit was the crucial date and on any view was important. He said that his secretary must have left that part out and he had not noticed it. This Kaplan, J., did find extraordinary and we consider that he had every reason to do so. It was submitted to us that it is not correct to say that the 6th May was the crucial date in terms of the issue as to repudiation. Mr. Ho had said that he had been informed by Mr. Raymond Ng of Eu Asia that as they had not been paid in accordance with their demands they would suspend works and that he saw no work being carried out after 3:50 on the 3rd May. On the 4th May he telephoned the site and was told that Eu Asia were not working and Mr. Ng told him that work had been suspended. Mr. Ng asked for immediate payment of $70,000 as a condition for resuming work. He goes on to say that on the 5th May there were only some six workers on the whereas the normal labour force was about 30. The statement then goes on to deal with the 7th May when the witness visited the site and saw Eu Asia's workers doing nothing and on the 9th May he was told that again there were no workers from Eu Asia on site. It was put to Mr. Ho that he had omitted to refer to the 6th May because it was on that date that the sign was erected prohibiting the Eu Asia workers from entering the site. It is submitted that on this basis the events of the 6th May were of no great significance. Again we disagree as that was the day that a notice was put up prohibiting Eu Asia workers from entering the site. This was indeed a crucial event and it is strange that it was not mentioned in Mr. Vincent Ho's statement.

16. The trial judge then goes on to refer to the evidence of Mr. Ho in relation to the minutes of meetings between Wing Hong and the Authority. When passages were pointed out which seemed to support Eu Asia's case Mr. Ho said that the minutes were for record purposes only and did not reflect what had been agreed with the representatives of the Authority. We too find this surprising and cannot see any reason why the trial judge should be criticised in attaching considerable significance to it. One would have thought that if the delays to the contract were being caused by the fault of Eu Asia then the Authority would have been informed and this would have been reflected in the minutes. Mr. Ho's evidence was that complaints had been made about bulging concrete by the Authority at their meetings but these had not been included in the minutes as he had spoken to the structural engineer and asked him not to put it down - it was by no means uncommon that certain topics discussed at meetings are not for various reasons recorded in the minutes. That may be so but it is a matter upon which the judge was perfectly entitled to comment and to take into account.

17. Another feature which the judge found of significance in relation to Mr. Ho's evidence was that in paragraph 8.3 of the minutes of a meeting on the 17th March with the Authority it is said that "problems had been experienced with labour supply and modifications to the steel formwork which had caused delays". However in cross-examination he agreed that the modification to the steel formwork contributed little or nothing to the slow progress. In any event the design of the steel formwork was Wing Hong's responsibility.

18. Mr. Ho also gave evidence relating to the 9 day cycle for completing one storey of the concrete shell of each block which was supposed to start in February 1989 and he said that it was Eu Asia's fault which prevented that happening. It was part of Wing Hong's case that Eu Asia had failed to work to the cycle and was one of the reasons why Wing Hong were entitled to terminate the contract. Mr. Ho said that the procedure for the 9 day cycle was agreed in January and the steel work was ready for it by the end of that month. That is not reflected in any of the documents, as one would have expected. It was put to Mr. Ho in cross-examination "that it is clear beyond peradventure on the documents that really you couldn't start the 9 day cycle until mid to late March at the earliest". To this he replied "Well, I need to find the evidence first the document to prove that everything is modified." He was then asked by the trial judge "Well, he has put it to you that late March is the earliest you could have started the 9 day cycle. I assume your answer to that is 'No, that's wrong'. Am I right?". The answer to that was "Yes". He also then agreed that he would try and find some documents overnight to support what he said. Nothing further however appears to have come from this.

19. Documents also showed that Wing Hong was still purchasing additional steel formwork for the floors in mid March 1989 so that the 9 day cycle could be carried out. These documents show that these were additional new frames and Mr. Ho accepted that Wing Hong had paid for them and had never claimed payment from Eu Asia. This was contrary to his evidence that Eu Asia had damaged the frames and that these were not new frames but were replacements. It is not in dispute, that although Eu Asia would have been liable for the replacement cost of any steel frames which they had damaged, no such claim was made against them in respect of these steel frames by Wing Hong.

20. Eu Asia replied on the 5th May saying that they had supplied workers to lay the walls of the 6th to 7th floors but Wing Hong had not sent concrete or angle ribs to the site and the "shears leg" on Block B was not available. As a result work had stopped. It is not disputed that the tower crane on Block B was broken on the 3rd May and remained so for the purposes of this dispute.

21. We are satisfied that there was clear evidence both oral and in the documents that the 9 day cycle, which was an important part of the evidence, could not be put into operation until towards the end of March and this was not due to the fault of Eu Asia but to Wing Hong's problems with the steel formwork. On this Kaplan, J., was entitled to disbelieve Mr. Ho and to accept the evidence of Mr. Lee, Eu Asia's project manager. Mr. Lee's version was also supported by the sub-sub-contractor, Mr. Chan, who said that the late modifications did slow down the work. There is the evidence relating to the additional formwork purchased in March and not charged to Eu Asia and the correspondence with the Authority in mid March seeking approval for the modification proposals and the granting of conditional approval on the 20th March. Mr. Ho sought to explain that on the basis that verbal approval was given first and confirmed in writing somewhat later. Kaplan,. J. was entitled to disbelieve that evidence.

22. There are other parts of Mr. Ho's evidence relating to the effect of bulging and honey-combed concrete and the way it was repaired which certainly does not seem to be supported by the documents. There was also the agreement as to how many carpenters should be provided by Eu Asia. Mr. Ho said it was to be four per block but Wing Hong's notes refer to a total of four for both blocks. Mr. Ho said this was due to Wing Hong's site agent's poor written Chinese but there was never any written complaint to Eu Asia about the number of carpenters despite there not being four per block.

23. A further ground of appeal relates to Kaplan, J.'s dismissal of the evidence of Mr. Cheung Kit Kwan and Mr. Chow Lin Fu, Wing Hong's foremen respectively for Blocks A and B. About them he said:

" Wing Hong also called Mr. Chow and Mr. Cheung. Their evidence were short and did not advance Wing Hong's case in any material particular. Mr. Chow quite fairly conceded that he had little independent recollection of events and relied upon the contemporaneous documents. In so far as the evidence of these 2 witnesses can be said to conflict with the version of events given by Eu Asia's witnesses I again prefer the latter's. Some relevant passages in Mr. Cheung's statement were not even put to Mr. Chan for him to deal with."

Mr. Cheung said that on the 3rd May he was told by his bosses, Vincent Ho and Walter Wong, that Eu Asia's workers would stop work on the following day. That, if true, seems surprising and contrary to Mr. Ho's evidence. He then went on to say that on the 6th May there were some 11 of Eu Asia's men on the site but they did not work. The same thing happened on the 7th and 8th. He said they should have been working. He was referred to the notice put up by Wing Hong on the 6th May forbidding Eu Asia's men to enter the site and said it was a "3 days" notice. On being shown the notice he agreed it had nothing in it about "3 days". He also said that a lintel beam reinforcement did not remain to be fixed on the 4th May and when shown Wing Hong site record for that day which shows reinforcement being fixed at the 7th floor of Block A said the record was wrong. This evidence was also contrary to that of the sub-sub-contractor, Mr. Chan. It was put to Mr. Chan that he had a conversation with Mr. Cheung about suspending work on the 4th May. That he denied and he said there was no suspension of work on the 4th May. Mr. Cheung's evidence that Eu Asia did no work on the 4th is also contradicted by the purchase on that day by Eu Asia of a 25 kg bag of Tricopac material for doing repair work.

24. We do not consider that Kaplan, J., has done an injustice to Mr. Cheung's evidence in regarding it as of little value to Wing Hong.

25. Mr. Chow Lin Fu, Wing Hong's site foreman for Block B, gave similar evidence to Mr. Cheung relating to being told that Eu Asia would stop work on the 4th May and that on that day, and on the 5th, 6th, 7th and 8th there were only about 10 workers on the site, who did no work. He agreed that his memory of events had faded but he considered that the contemporaneous documents would be correct. It was agreed that the crane on Block B was not usable on those dates and only repair work on the block could have been carried out. Eu Asia's records showed that such repair work was carried out.

26. For the same reasons as related to Mr. Cheung's evidence, we do not consider that Kaplan, J., was in error in finding that Mr. Chow's evidence did not advance the defendant's case a great deal, though clearly he had considered it.

27. Although Kaplan, J., did not come to a conclusive finding he clearly did consider that there was evidence pointing to Mr. Vincent Ho and Mr. Liu, Wing Hong's managing director, having planned to get rid of Eu Asia and to employ Mr. Chan, Eu Asia's sub-sub-contractor, in its place. This was based on his finding that prior to the termination of the sub-contract they had approached Mr. Chan to that effect and that they might have considered that Wing Hong was in difficulty with the Authority over the delay and if they could blame Eu Asia and replace them this would help to overcome that problem. It is a ground of appeal that this "conspiracy" theory was pure speculation and was not based on evidence.

28. There was clear evidence from Mr. Chan, which Kaplan, J., was entitled to accept, that an approach had been made to him on the 4th May by Wing Hong as to whether he would be prepared to sub-contract direct to Wing Hong. In the light of the disputes which had arisen between Eu Asia and Wing Hong and the demand by Eu Asia to be paid immediately all money they alleged to be owing, that was by no means unbelievable. On all the evidence before him Kaplan, J., came to the conclusion that from the 4th May Wing Hong was trying to get Eu Asia off the site. Apart from Mr. Chan (an independent sub-sub-contractor) there seems to be support for that in the evidence of both Mr. Cheung and Mr. Chow, Wing Hong's foremen who said they were told by their superiors in Wing Hong on the 3rd May that Eu Asia would stop work on the 4th. Accordingly on that day no concrete was ordered and a site inspection by the Authority was cancelled.

29. Wing Hong point out that if Eu Asia's workers had been on site ready to go, concrete could have been ordered and the inspection carried out at short notice but this was evidence for the trial judge to evaluate, which he did. He was further criticised for his finding in that he had "ignored" the contemporaneous complaints made by Wing Hong to Eu Asia, some of which were relayed to the Authority relating to Eu Asia's failure to repair honey-combing and do "return visit" work. There was however evidence supported by documents such as the purchase by Eu Asia from Wing Hong on the 4th May of the Tricopac to the effect that repair work was done on the 4th and 5th May. No concreting could be done but that was not the fault of Eu Asia. Kaplan, J., was entitled to accept that evidence.

30. It was Wing Hong's case before us that Kaplan, J., adopted too sweeping an approach in his findings as to credit. He should not have said that where Eu Asia's witnesses' evidence was contrary to that of Wing Hong he preferred that of Eu Asia. He should have analysed the evidence on both sides in detail. That, however, we consider he has done in a careful reserved judgment of some 47 pages. Kaplan, J., did come to very definite findings as to credibility but we do not consider the manner in which he did so shows he had not fully considered the evidence on both sides in reaching the conclusions he did.

31. There was a further ground of appeal on the trial judge's finding that even if there was delay caused by the fault of Eu Asia, Wing Hong had waived its rights by allowing Eu Asia to continue with the work after the alleged breach, in particular by a letter of 4th May which called on Eu Asia to resume work on the 5th May. He found that if Eu Asia had been allowed to continue work on the 6th May, the day the notice was posted, a plea of waiver would have been unanswerable. This was an alternative to Eu Asia's primary submission and in the light of Kaplan, J.'s finding as to the cause of delay was of no significance. In any event we consider his finding on this was correct.

Quantum

32. It was agreed before this Court that Kaplan, J.'s award for loss of profit was not correctly calculated and that the amount, based on his findings and calculation, should have been $1,733,444, not $1,919,515, no allowance having been made for the additional overhead of directors' fees.

33. His findings as to quantum as to loss of profit are also challenged on various grounds:

1. Overheads. Kaplan, J., calculated that Eu Asia's overhead expenses, which had to be deducted from its potential profit should have been on the basis of a 14-month period for the contractor work, as contemplated but not specifically stated in the contract and based on existing delays and likely future ones. Mr. Ng, for Eu Asia, said it would have been 13 months and he was not challenged on that estimate. While making no specific finding Kaplan, J., was entitled to accept that evidence, which was supported by the Authority's minutes of the meetings showing that Wing Hong were confident of finishing on time.

2. It was strongly contended before us that the profit figure found by Kaplan, J., gave an unrealistic percentage of some 26.5%. That was higher than for a normal contract.

Eu Asia took a figure they would have had to pay their sub-sub-contractors, added to that a proportion (37.5%) of their office expenses and deducted that from the contract amount of $7,690,000. Eu Asia had three contracts going at the time of this dispute and the 37.5% was Mr. Ng's estimate of the expenses which were relative to

this contract. Kaplan, J., rounded that up to 40%. On the evidence that seems perfectly reasonable. It was also contended for Wing Hong that he took the wrong approach in stating that Eu Asia was entitled to the profit it would have made had the contract run its full course. He should have awarded an amount which was reasonably predictable. The level of 26.5% profit was too high. If there was a reasonable possibility that the profit level hoped for would not be reached, that should have been taken into account. We do not consider that ground has been made out. Mr. Ng said that 26.5% was above average but it was not an unreasonable figure for a contract of this sort where all the actual work was sub-sub-contracted. Kaplan, J., did also fully consider the uncertainties of all building contracts and specifically reduced the first figure he came to for loss of profit $1,669,978 to $1,300,000 to cover such unknown factors such as Eu Asia's possible liability for delay.

3. Tax. It was submitted that the judge should have deducted the profits tax which Eu Asia would have had to pay on the profit it would have earned, relying on British Transport Commission v. Gourley [1956] AC 185. We do not agree. It would have been impossible for the trial judge to calculate the tax payable (if any) on the profit which would have been earned - Eu Asia may have had expenses or losses on other contracts which could have been claimed. The amount awarded for loss of profit may be taxable in its hands but that is a matter for the Commissioner of Inland Revenue, not the trial judge.

34. We would therefore dismiss the appeal as to liability but allow it in part as to quantum. The amount Kaplan, J., awarded for loss of profit should have been $1,733,444, not $1,919,515. That figure was reduced by 13%, the extent to which the contract had been completed giving a figure of $1,669,978 rounded down to $1,300,000.

35. Counsel informed us that if we decided that the figure of $1,733,444 was correct the parties would be able to agree on the actual amount which should be awarded, allowing for the uncertain factors referred to by Kaplan, J. If they are in fact not able to do so there will be liberty to apply for that amount to be fixed.

36. We would make an order nisi that the respondent have its costs of this appeal. While Wing Hong have succeeded in reducing the quantum of the award that was by consent and there would have been no need to come to this Court to have achieved that result.

Representation:

Mr. Peter Graham and Mr. A. Houghton (Tsang, Chan & Shuen) for appellant

Mr. Peter Clayton (Ho & Chan) for respondent