Yeung Ming t/a Ming Lee Construction Co v. Tsang Shui on and Others

CACV000008/1969

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 8 OF 1969

-----------------

Coram: Blair-Kerr & McMullin, JJ.

Date of Judgment: 26 September 1969

-----------------

JUDGMENT

-----------------

McMullin, J.:

1. The parties of the action out of which this appeal arises entered into a written contract dated 21st February, 1967, whereby the plaintiff (the present appellant) undertook to build a number of houses in the New Territories for the defendants for a sum of $863,735.67. This contract which is in the usual R.I.B.A. form contains a number of provisions which are a type familiar in such documents. In particular, clause 25 contains provisions for interim payments to be made to the contractor against the issue of interim certificates. In the present case, however, the person charged with the duty of issuing the certificates is not the architect but a person referred to as a "supervisor" and who was, in fact, an administrative officer in the Hong Kong Government stationed in the New Territories. By clause 8 it is provided that the employer is entitled to appoint the supervisor whose duty shall be to act solely as inspector on behalf of the employers.

2. The appendix to the contract stipulates that the interim certificates are to be issued every month and that the minimum amount of each interim certificate, entitling the plaintiff to interim payment, is to be $40,000 worth of work completed at the date of the certificate.

3. Clause 21 of the contract provides for the termination by the employer of the contract consequent upon various acts of default on the part of the contractors.

4. The plaintiff became dissatisfied with the manner in which the defendants were carrying out their work very shortly after the commencement of the work and certain meetings were held and letters were exchanged concerning the defendants alleged failure to live up to his contractual obligations. Eventually, on the 1st September, 1967, a final notice was given by registered post by the defendants to the plaintiff specifying certain defaults which the plaintiff was required to remedy, specifying a time within which they should be remedied, and notifying the plaintiff that in default of remedying these defects the contract would be terminated. It is not in dispute that these specified defaults were not eventually remedied and, accordingly, by letter dated the 20th September, 1967, the plaintiff's employment as contractor was determined. By the 1st September the defendants had already paid under the contract two interim payments amounting in all to $96,200 odd. And on or about the 1st September they also paid to a judgment creditor of the plaintiffs a further sum of $25,400.

5. On the 15th May, 1968, the plaintiff issued a writ in the endorsement to which, having first enunciated the terms of the contract, in para.6 there of he goes on to say that by the 5th September he had completed a volume of work on the site which, allowing for deductions in respect of interim payments plus 10 per cent retention money and adding in the value of materials up on the site, the defendants then owed him a sum of $95,178.98. In para.7 of the endorsement he goes on to say that the supervisor had unreasonably and without lawful cause refused or failed to issue a certificate relating to these works and materials. He therefore claimed a sum of $95,178.98 and also prayed the court for an order against the defendants directing the defendants to cause the supervisor to issue a certificate in accordance with the provisions of the contract.

6. In their defence the defendants pleaded that they had lawfully terminated the contract by virtue of the various acts of default on the part of the plaintiff to which reference has been made above. They relied upon the provisions of clause 21(c) of the contract which gives, in detail, the procedures which are to be followed upon lawful termination of the contract. In particular they point to the provisions of paras.1 and 4 of sub-paragraph (c) of that clause which are in the following terms:-

7. In their reply to this defence, the plaintiffs quote para.(a) of clause 21 and, in particular, the proviso thereto which states:-

It was the case for the defendants at the trial that upon the date of the purported determination of the contract, i.e. 20th September, 1967, the defendants were already in breach of the contract in that the third interim payment, amounting to approximately $95,000, was outstanding and unpaid despite requests made by the plaintiff for the payment thereof.

8. The trial judge found as a fact that the contract was reasonably terminated by the defendants by virtue of a series of defaults in performance which had occurred prior to the date of termination. He treated this issue as a central issue in the case and found for the defendants accordingly. In doing so, he referred to clause 21(c) and pointed out that the result of his holding that the contract had been lawfully terminated under that clause was that the further provisions of that clause detailing the consequences of lawful determination must now ensue. In effect, therefor, he found that the plaintiff at the time of his writ had not any cause of action against the defendants and that any rights that he might have against him would not accrue to him until the contract work had been completed by the subsequent contractor referred to in clause 21(c)(1) of the contract.

9. The Notice of Appeal dated 8th March, 1969, filed on behalf of the appellant by his solicitors contained four separate grounds of appeal. At the hearing, however, Mr. Yu, who appeared for the appellant sought to introduce a totally new ground of appeal and he told the court that he proposed to rely upon this as his main ground. Mr. Litton, though somewhat taken by surprise by this late novelty and although no written ground of appeal covering the new point was then before the court, after a brief adjournment, informed the court that he did not oppose the introduction of this new ground. On the afternoon of the same day a typescript containing the modified grounds of appeal upon which the appellant was then relying was tendered to the court on his behalf. The revised grounds thus stated are not by any means free from ambiguity but it should be noted that in respect of two points at least Mr. Yu's position on his client's rights was perfectly clear: firstly, he conceded that there was evidence upon which the court below could find that the contract was properly terminated; and, secondly, he expressly abandoned at least that part of the original Ground 4 of the grounds of appeal in which the point was made that the notice of termination was void because at the date of the said notice the defendants were in breach of the contract themselves by having failed to pay for work already completed in excess of $40,000 and for having failed to furnish a certificate to that effect.

10. In effect, Mr. Yu's argument was that, although the contract may have been perfectly properly terminated, nevertheless at the purported date of termination there had accrued to the plaintiff a vested right to be paid for work done by him between the time of the second interim payment and the time of notice of termination. This sum, according to his estimate, amounted to more than $40,000. In this connection Mr. Yu referred us to a valuation which was prepared at the plaintiff's request by an independent surveyor sometime in November. This document, which will be found at pages 189-191 of the record, gives the estimated total value of work done as $166,675.68. This figure contrasts with the valuation prepared by the District Officer which appears at page 169 headed: "Estimate of works completed up till 5th September, 1967, for the construction of 58 nos, of village-type houses at Kwai Chung". This latter estimate, which was prepared shortly after that date, gives the sum of $140,890.70. If from this latter figure is taken away the sum of $121,000 odd paid in respect of the first two interim payments plus the money paid in the garnishee proceedings a sum of $19,000 odd only will be seen to have been due at that date. On the figure supplied by the plaintiff's surveyor in November, however, the balance after substracting $121,000 odd would overtop the $40,000 mark.

11. Mr. Yu sought to argue that the defendants, while pleading that the contract had been properly terminated, should nevertheless have acknowledged in their pleadings that the plaintiff might ultimately be entitled to something upon the completion of the work by the subsequent contractor. He said that at that stage they should thereupon have asked for a stay in the proceedings until the whole job had been completed. They ought, he said also, to have submitted to any interim judgment which the trial judge might have seen fit to award on the basis of work valued above $40,000 done by the plaintiff for the defendants prior to the date of termination. It was, of course, part of the latter argument that the trial judge should have made such an award.

12. To this, Mr. Litton replies quite simply that once it is conceded on behalf of the appellant that the contract was reasonably terminated then the appellant must accept the consequences which ineluctably follow by virtue of the provisions of 21(c)(4) thereof. Leaving aside all question of dispute as to the actual quantum of work performed by the plaintiff at the time of termination there can, he says, be no question that once termination has been lawfully effected the only rights remaining to the parties are those which they themselves have specifically agreed should follow upon such termination. Secondly, he says, that even apart from the clear provisions of clause 21(c)(4) the plaintiff once again has no lawful claim against the defendants by virtue of the fact that it was agreed between the parties that interim payments should only be made upon the valuation of the supervisor appointed under the contract. The latest valuation made by the supervisor shows that the amount of work done by the plaintiff, less money paid to or on behalf of the plaintiff, is less than $40,000. He points out that it has not been pleaded that this valuation is wrong nor has any declaration been sought against the supervisor. On either of these grounds therefore, he says, the trial judge was justified in coming to the conclusion that at the time of his writ the plaintiff had no lawful cause of action and that, Mr. Litton says, is the effect of the judgment which was given.

13. To my way of thinking he is right on both of these contentions. Once the appellant conceded that the contract had been terminated for good cause he put himself in an impossible position in relation to his appeal. Only by maintaining and showing that the notice of termination was void and ineffective could he evade the results which, by his own express agreement, were to follow under clause 21. Secondly, I think Mr. Litton is clearly correct when he approximated the position of the supervis or under the contract to that of the architect under the usual R.I.B.A form of contract. Dunlop v. Hendall ⁽¹⁾ which he cited to us is ample authority for the proposition that under such a contract no debt becomes due until the architect's certificate has been given.

14. This was a lump sum contract for a stipulated quantum of work to be done for a stipulated sum. Before the plaintiff had completed the work the contract was determined by the employers under the powers given to them by Clause 21. It has not been argued before us that there was reasonable cause for the defendants' default which resulted in the notice of termination. That being the state of things at the date of the notice of termination, the parties were relegated to the rights which, by express agreement, they were to enjoy under the provisions of Clause 21 subsequent upon such lawful determination. The wording of sub-clause 4 of that Clause is perfectly clear and unequivocal. Upon termination the employer is not to be bound by any other provision of the contract to make payment to the contractor. The words: "Any other provision" necessarily include the provisions of Clause 25 and there can, therefore, be no question of a vested right accruing to the defendants in respect of some non-paid interim payment even if on the facts the same were due to him at the date of termination. After termination with cause all rights and liabilities between the parties are justiciable only as provided in Clause 21.

15. This is not out of accord with commonsense for, even assuming the defendants to have had some such vested right before termination, their subsequent default brought about a state of affair in which it became necessary for the defendants to employ a new contractor if they wished to complete the job. If that were done and the final contract money paid, both to the defendants and to the subsequent contractor in respect of the completed work, overtopped the figure originally agreed between the plaintiff and the defendants the defendants would be entitled to claim against the plaintiff for the excess. If and when they did so the plaintiff could no doubt plead and attempt to prove the value of all works done by him at the date of his dismissal by way of set-off. The court would then have the task of deciding whether the figure so claimed was the figure which he now claims in his writ or the figure which seems to be indicated his independent valuer or the figure of $19,000 odd which the defendants suggest or some other figure. Likewise if a subsequent contractor is employed and if he contrives to complete the work at a lower overall figure than that originally agreed between the plaintiff and the defendants, the plaintiff will be in the happy position of being able to claim the balance under Clause 21. In such an event it would scarcely be reasonable to suppose that he could claim such balance and, in addition, a sum by way of interim payment as a sum lawfully due to him at the date of termination. He consented in effect, to a final settling of accounts should the contract be lawfully taken away from him and what he has here been seeking to do is to anticipate that final reckoning by an untimely attempt to secure payment of one sum which, if due at all, would simply be part of the final accounting picture. For these reasons this court dismissed the appeal on 16th September, 1969.

Representation:

P.Yu (Stephen Lo & Co.) for Plaintiff/Appellant.

Litton (David Burgin & Co.) for Defendants/Respondents

Reasons for dismissing the appeal reduced into writing.