Chung Fai Engineering Co. (A Firm) v. Maxwell Engineering Co. Ltd.
Read the full judgment text of CACV 981/2000 on BabelCite. This Court of Appeal judgment was delivered on 15 June 2001 before Mayo VP, Keith JA, Stock JA.
Civil law – building contract – sub-contract for mechanical ventilation air-conditioning system (MVAC) – interim payment disputes – supplemental agreement – termination – whether time was of the essence – whether delay constituted repudiatory breach – appeal on findings of fact – printing factory at Tseung Kwan O, contract dated 2 April 1996, total contract price of HK$14 million – sub-contract between Chung Fai and Maxwell – disputes over interim payment applications and dishonoured post-dated cheque of HK$2.05 million – supplemental agreement requiring completion of works for Fire Services Department inspection on 12 August 1996 – whether Maxwell's failure to complete works by 12 August 1996 entitled Chung Fai to terminate the principal contract – holding that time was never of the essence of the contract and was not pleaded as such – inspection not in fact due until 21 August – conditions on site (electricity connected 10 October, water 5 November) not ready – whether trial judge erred in findings of fact on delay – Court of Appeal declined to interfere with primary findings of fact in absence of demonstrated misunderstanding of evidence, failure to appreciate its effect, or overlooked indisputable evidence – reliance on Lobo v Kripalani [1998] 2 HKLRD 325 – appeal dismissed with costs to Maxwell.
Legal issues: Whether Maxwell's alleged failure to complete works by 12 August 1996 entitled Chung Fai to terminate the principal contract · Whether the trial judge erred in his findings of fact on delay
Outcome: Appeal dismissed
Cited by 13 cases · Cites 3 cases
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CACV000981/2000 CACV 981/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 981 OF 2000 (ON APPEAL FROM HCA 10504 OF 1996 & HCA 10631 OF 1996 (CONSOLIDATED)) ________________
________________ Coram: Hon Mayo VP, Keith JA and Stock JA in Court Date of Hearing: 15 June 2001 Date of Judgment: 15 June 2001 ________________ J U D G M E N T _______________ Hon Mayo VP: 1.This is an appeal from a judgment of Burrell J. He was hearing two actions which had been consolidated. Maxwell Engineering Company Limited ("Maxwell") was the plaintiff in HCA 10631/1996. In this action they claimed $7,482,200.00 against Chung Fai Engineering Co. ("Chung Fai") for breach of contract and $2,050,000.00 on a dishonoured cheque. 2.Chung Fai was the plaintiff in HCA 10504/1996. They were suing Maxwell for damages for breach of contract and the return of the cheque referred to and various declarations. 3.After a trial lasting six days the Judge entered judgment for $6,071,000.00 in favour of Maxwell. It is this judgment which Chung Fai is appealing from. 4.The actions relate to a building contract. The building is a printing factory which was being built at Tseung Kwan O. W. Hing Construction Company and its subsidiary Anpoint Engineering Ltd was the main contractor. The air-conditioning work was sub-contracted to Chung Fai who in turn sub-contracted the mechanical ventilation air-conditioning system ("MVAC") to Maxwell. 5.A contract dated 2 April 1996 evidenced the terms of the agreement concluded between Chung Fai and Maxwell. The total contract price was $14 million. 6.Maxwell commenced work on the site in April 1996. Not long after work began disputes arose between the parties concerning applications made by Maxwell for interim payments. 7.The contract terms relating to this were:
8.Maxwell contended that they were not receiving payments in respect of the certificates which they were submitting to Chung Fai. 9.After an exchange of correspondence Maxwell wrote to Chung Fai on 17 July 1996 informing them that as a result of their withholding the payments which were due to them they proposed ceasing work and taking legal action against them. A meeting was convened shortly after this attended by all interested parties and a supplemental agreement was entered into in an endeavour to resolve the differences between the parties. The supplemental agreement was in these terms:
10.In addition to this Chung Fai gave Maxwell a cheque for $2.05 million post-dated to 10 August 1996. This cheque was the cheque earlier referred to in this judgment. They also gave them a cheque for $245,000 as an additional payment in respect of the first interim payment application. 11.Further applications for interim payments were made on 15 July 1996 and 15 August 1996. The payments were for $3,311,590.00 and $801,435.00 respectively. Neither payment was made. 12.Also the post-dated cheque referred to was dishonoured on presentation. 13.On 2 August 1996 Chung Fai wrote to Maxwell making numerous complaints concerning the work which had been undertaken. The letter concluded with a threat that unless there was a substantial improvement of their work progress by 5:00 p.m. on 5 August 1996 they would exercise their contractual rights. In this connection they appeared to place reliance upon clause 13 of the contract which is in these terms:
14.On 12 August 1996 Chung Fai re-entered the site. When attempting to resolve the question as whether Chung Fai were justified in terminating the contract the Judge identified four main issues. 15.Although the first three are not directly relevant to the grounds of appeal which have been lodged it is necessary to briefly consider them as they have a significant bearing upon the fourth issue of delay which is the main subject of this appeal. 16.The first issue related to a contention which was advanced by Chung Fai that at the time when the contract had been entered into there had been an oral agreement between the parties that payments to Maxwell would only be made to them after Chung Fai had themselves received payment from their head contractor. The Judge gave cogent reasons for rejecting the evidence of Mr. C.K. Chan a director of Chung Fai in relation to this. No complaint is made concerning this finding in the notice of appeal. 17.The second issue related to a claim which was made by Chung Fai that they should not be bound by the supplemental agreement as it had only been entered into by Chung Fai as a consequence of economic duress. Indeed at the hearing Mr Ho for Chung Fai gave evidence to the effect that when he entered into the supplemental agreement he had not understood the true nature of the agreement. Perhaps not surprisingly in the circumstances the Judge rejected this evidence and held that the supplementary agreement was a binding agreement. 18.Chung Fai now appear to have changed their tune on this aspect of the case. In ground one of the notice of appeal they state that the Judge "correctly found that the supplementary agreement was valid and binding". Their reason for this sea change is that reliance is now being placed on clause 2 of the supplemental agreement that the necessary work had to be completed to enable a fire services inspection to be undertaken on 12 August 1996. In this connection it is noteworthy to observe that when Chung Fai purported to terminate the contract pursuant to clause 13 they did not give Maxwell the requisite seven days' notice to make good the deficiencies which had been referred to. 19.The third issue which was considered by the Judge was Chung Fai's claim that when the post-dated cheque was handed over at the 18 July 1996 meeting there had been an oral agreement that the cheque would only be presented for payment on the fulfilment of various conditions. Again for cogent reasons the Judge rejected the testimony of Chung Fai's witness and accepted the evidence of Mr Yum a director of Maxwell. 20.The main reason for referring to these issues is to provide a background to the main issue which is ventilated on this appeal which is whether the Judge could on the evidence which was before him have found that Maxwell had not been guilty of delay such as to justify Chung Fai in terminating the contract. 21.What is manifest is that Chung Fai were not complying with their contractual obligations to make payments to Maxwell when presented with applications for interim payments. This is particularly of relevance in relation to the first and third issues. 22.So far as the attempt to avoid the provisions of the supplemental agreement is concerned there has to be some doubt as to the sincerity of this claim in view of the claim now being made by Chung Fai, relying on clause 2 of the agreement, that it was incumbent upon Maxwell to complete the necessary work to enable the fire services inspection to take place. 23.It is now necessary to consider the question of delay and whether Chung Fai were by their letter of 12 August 1996 justified in terminating the main contract dated 2 April 1996. 24.The letter was in these terms:
25.Two matters are immediately apparent from this letter. The first is that no claim is being made on the basis of clause 2 of the supplemental agreement and the alleged non-compliance with the requirement to complete work so that the Fire Department inspection can take place. 26.The second is that it is clear from the contents of the letter that work over and above the work required for the inspection is referred to and hence the date of 12 August 1996 would have no application to this. 27.There was an abundance of evidence concerning all of the work before the Judge. This included evidence that all the fire dampers had been completed and substantially the fire resistance panels for duct work had been completed. 82 smoke extraction fans had been ordered well in advance. It is however true that eight of the extraction fans had not been delivered by 12 August 1996. Time however was not of the essence of the contract. It was never pleaded in the pleadings. 28.Even if Chung Fai had attempted to invoke clause 2 of the supplemental agreement their efforts would have been unavailing. Mr Yum gave detailed evidence of what would be involved in a fire service inspection. The Judge accepted evidence that an inspection required the participation of other interested parties. 29.What this all meant was that the conditions on site had to be such that an inspection could take place. 30.Clearly these conditions had not been complied with. Amongst other things there was evidence that the electricity or water supplies were not ready on 12 August 1996. 31.In the fourth ground of appeal complaint is made that the Judge attempted to rewrite the bargain between the parties when he held that compliance with the target date of 12 August 1996 was unrealistic. As has been indicated earlier Chung Fai was not placing reliance on clause 2 of supplemental agreement. In addition to this there was no magic in the so-called target date. Certainly there was no agreement between the parties that if the target date was not met it would entitle Chung Fai to terminate the contract. 32.It is clear from the issues which are ventilated in this appeal that to a very large extent this court is being invited to interfere with findings of fact made by the Judge at the trial. It is no part of the function of the Court of Appeal to retry cases. It is only in the most exceptional circumstances that appeals based on findings of fact will be successful. The observations of Godfrey JA (as he then was) at p. 327 of Lobo v Kripalani [1998] 2 HKLRD 325 may be of assistance:
33.These remarks are apposite to the instant appeal. It can be added that there is every reason to believe on the basis of the material which is before this court that the Judge was fully justified in making the findings of fact which are complained of. In my view this appeal is without merit and should be dismissed. Hon Keith JA: 34.I agree that this appeal should be dismissed, but I wish to add two observations of my own. First, the only point taken by Chung Fai on this appeal is that Burrell J erred in concluding that Maxwell had not failed to comply with clause 2 of the supplementary agreement in such circumstances as to entitle Chung Fai to terminate the principal contract between the parties. The allegation is that Maxwell had failed to complete by 12 August 1996 those works which had to be completed before the inspection by the Fire Services Department could take place. However, any failure by Maxwell to complete those works by then could only have entitled Chung Fai to terminate the principal contract between the parties if the stipulation as to the time for completing those works had been of the essence. Unfortunately for Chung Fai, it was never pleaded that time had been of the essence - no doubt because Chung Fai was then saying that the supplementary agreement had not been valid and binding. 35.In any event, I have not discerned any basis on which it could be said that time was of the essence. It was never expressly made of the essence, and the obligation to complete the works by 12 August could not have been impliedly made of the essence because the inspection by the Fire Services Department was not in fact due to take place until 21 August. Thus, even if Maxwell had been in breach of clause 2 of the supplementary agreement by failing to complete the necessary works by 12 August 1996, that failure could not have entitled Chung Fai to treat that breach as a repudiatory breach of the principal contract between the parties, thereby entitling Chung Fai to treat the principal contract as at an end. In my judgment, that is sufficient to dispose of this appeal. 36.Secondly, Maxwell would have been relieved of its contractual obligation to complete by 12 August 1996 the works which had to be completed before the inspection by the Fire Services Department could take place if its ability to complete the works by then had been rendered impossible by factors beyond its control. Such factors would have included the unavailability of electrical power or water to enable the works to be completed. Mr Ben Beaumont for Chung Fai (who did not represent Chung Fai at the trial) agreed. On that issue, the judge said:
If Chung Fai's appeal is to succeed, both elements of that finding of fact, namely that the disruptions to the supply of both power and water made the contractual deadline unrealistic, have to be set aside. I have not myself reached any conclusion as to whether the judge was entitled on the evidence to make the finding of fact which he did, in view of the facts that (a) it has not been open to Chung Fai to argue that the stipulation as to time was of the essence, and (b) the stipulation as to time was plainly not of the essence. Hon Stock JA: 37.I agree with the judgments delivered, and that the appeal should be dismissed. 38.The complaint in this appeal is that the judge was in error in his findings as to delay, and it is contended that the respondent's delay in completing the ventilation works constituted a repudiatory breach. 39.There are certain fundamental problems with the appellant's case:
There was no reply to that letter. There was no suggestion of some imminent inspection. It is perfectly clear that what was important was not some theoretical date for inspection, but rather that the ventilation be completed in time for such inspection, when it took place. 12 August was, by reason of the supplementary agreement, a target date and was not one to be complied with, regardless of factors outside the control of the respondent. It was implicit in this agreement that, should it become apparent, as it did in this case, that inspection was, for extraneous reasons, significantly delayed, then failure by the respondent to meet the 12 August target would not be a matter going to the root of the contract. And that is precisely what happened. The evidence is clear, that the inspection could not take place until November, and that that delay had nothing to do with the respondent. There is no reason to suppose that the respondent would, but for the appellant's conduct in terminating the contract, not have been able to complete the work well in time before the inspection. Hon Mayo VP: 40.The appeal is accordingly dismissed and after hearing counsel Maxwell will have their costs.
Representation: Mr Ben Beaumont & Mr Danny Choi, instructed by M. F. Ko & Co., for the plaintiff Mr Wong Po Wing, instructed by Messrs Jesse H. Y. Kwok & Co., for the Defendant |
Cases cited in this judgment