Worthy Engineering Company Limited v. Lingking Construction Company Limited and Another

HCA001393/1985

1985, No. A1393

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Liu, J in Court

Dates of hearing: 3rd-7th, 10th-14th, 17th-21st, 24th-27th March, 1986 7th-11th, 14th-15th, 17th-18th, 21st-23rd April, 1986

Date of delivery of judgment: 7th May, 1986

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JUDGMENT

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1. The plaintiff, Worthy Engineering Co. Ltd. caused to be commenced this action in March last year against both defendants, Lingking Construction Co. Ltd. and Financial and Investment Services For Asia Limited. I shall call the plaintiff "Worthy", the 1st defendant "Lingking" and the 2nd defendant There are two claims against the defendants "F.I.S.A.".   The first is for $1,206,350.51, being value of works allegedly completed by Worthy up to their vacation of the construction site at Shek Wu Hui, Sheung Shui, New Territories. Worthy's $1,206,350.51 claim is, on its own calculations, $10 short. It really should be, though it is not so pleaded, $1,206,360.51. This shortfall will be explained in due course. Worthy's further claim is for loss of profit against Lingking and F.I.S.A. to the extent of $2,365,120.

2. The relationship between Worthy and Lingking was that of sub-contractor/contractor for the entire outstanding works under a Government Building Contract No. 1/TPF/82 at the said Sheung Shui site. F.I.S.A. is sued as the guarantor for Lingking's liability to pay Worthy. For this sub-contracting, on the 17th November 1984, a Sub-Contract in the Chinese language was signed between Worthy and Lingking as well as by F.I.S.A. as Lingking's guarantor. F.I.S.A. liability under the said Sub-Contract was not categorically specified. In its two letters subsequently delivered to Worthy, both dated the 21st December 1984, F.I.S.A.'s guarantor liability was more clearly spelt out as an undertaking to guarantee payment by Lingking of interim payments and for extras. Disputes also arose in relation to these letters, and I will return to them later.

3. From the outset, I should explain my approach to this case which was imbued with charges and counter-charges of every conceivable form and shape. In the course of my deliberation, I have  considered all these matters and formed my views as to how matters seem to stand. I have found it quite unnecessary to record my conclusions on a great many issues which are merely peripheral or obliquely related to the parties' blunt material allegations. I have tried to confine myself to the proximate events which are necessary for my decision.

4. What must be constantly borne in mind is that Worthy is not suing on the said Sub-Contract nor on F.I.S.A.'s guarantee therein given. When Worthy finally left the said construction site, its departure was the result of a compromise. It was not disputed that in this compromise, Lingking assumed some liability; nor was it denied that F.I.S.A. had agreed to guarantee Lingking's discharge of its liability under that compromise. Disagreement between the parties lay essentially in the terms of the settlement. The compromise was reached after a series of meetings. This introduction leads me to the relevant facts of this case.

5. Lingking was a Government licenced contractor and had successfully tendered for the works at this Shek Wu Hui construction site in Sheung Shui under the said Government Building Contract. Sub-contracting of the entire building works was not allowed, but it would seem that such sub-contracting was a tolerated practice, though never openly recognized. Lingking had the financial backing of F.I.S.A. for this, and other construction projects. In November, 1984, the permissible maximum quota for loan advances to Lingking by F.I.S.A. had almost been exhausted. Only a $6,000,000 margin was left. Up to November, 1984, Lingking's loss on this site in Sheung Shui came to over $3,000,000 and all in all Lingking's indebtedness to F.I.S.A. amounted to some $15,000,000. In addition, Lingking had run up another outside $1,500,000 debt for which F.I.S.A. guaranteed. From the middle of 1984, Lingking had found it increasingly difficult in clearing all the interim claims of the sub-contractors, and work progress on the said site was highly unsatisfactory. In fact, in May 1984 Government Engineer had threatened to recommend re-entry. By November 1984, effective work had stopped for some weeks and liquidated damages for delay were running against Lingking at about $1,300,000 a month or $42,000 a day.

6. Mr. Cheung Sin Lun was then an engineer in the employ of a construction company known as Luen Cheung Tai. Mr. Ngok Chiu was in partnership with one Lui Chueg in Kin Tat, hiring out construction machinery. Kin Tat was one of the unpaid sub-contractors of Lingking on the said construction site. Worthy's case was that only Cheung and Ngok were personally interested in the sub-contracting throughout their negotiation with the defendants. Worthy was incorporated with them and two brothers of Mr. Cheung as shareholders. On one occasion during the negotiation, one Mr. Chan Man Chuen attended. Earlier in time, when a construction firm, Eda, was contemplating joining Lingking, F.I.S.A. had satisfied itself with Eda's influence over a certain sub-contractor, the said Luen Cheung Tai, on a site visit to Lam Tim where Luen Cheung Tai's partners including a Mr. Chan Man Chuen were introduced. The defendants' allegation was that in November 1984 F.I.S.A. instructed Lingking to approach Luen Cheung Tai and that on one occasion when Mr. Cheung Sin Lun and Mr. Ngok Chiu came for negotiation with Mr. Chan Man Chuen, the conduct of and statements from this group led the defendants to believe that Luen Cheung Tai or at least its partner Chan Man Chuen would participate. Mr. Chan Man Chuen denied harbouring or having any interest in the job; he claimed to have attended only as a friend cum adviser and to have openly declared himself as such.

7. As for Worthy, Mr. Cheung Siu Lun allegedly expected the Sub-Contract to be signed with F.I.S.A. and not Lingking, and he produced a draft to Mr. Lee Kin Wah of Lingking with Worthy and F.I.S.A. as the contracting parties.

8. Whatever impressions the parties held, all were prepared to and did sign the Sub-Contract as it stood except for Mr. Chan Man Chuen whose name was put down as a guarantor for Worthy. In the Sub-Contract, F.I.S.A. became the guarantor of Lingking which signed as one of the contracting parties with Worthy. The names of Cheung Siu Lun, Ngok Chiu and Chan Man Chuen all appeared as Worthy's guatantors. This final version of the Sub-Contract was said to have come from Lingking. After clauses 3 and 4 were revised and replaced, as I have said, it was signed by all except Chan Man Chuen, with photostat copies taken for the parties. Different reasons were advanced as to why the Sub-Contract did not ultimately contain the signature of Mr. Chan Man Chuen. I will return later to this aspect.

9. Many sub-sub-contractors were unpaid. After signing of the Sub-Contract, Worthy's   commencement of the construction works was delayed. The unpaid workers of one of the sub-sub-contract, Loh Kee which had itself been paid by Lingking, erected obstructions. These obstructions were not removed until the 24th November. This court was told the Loh Kee workers' problem was finally resolved on the 8th December 1984.

10. On the 17th December 1984, Worthy was formally given the site. Worthy claimed to have been deprived of the use of an instrument, the Theodolite, an electronic meter. This was also a contested matter, but the responsibility for this had no real significance in view of the works stagnation caused by other uncontrollable factors on the site. In mid January, having borrowed one for 1 1/2 days, Worthy bought its own theodolite for $80,000.

11. The asphalter, Wimpey, was owed some $500,000 and had left the site since September 1984. Wimpey was concerned with the L6 road, being one of the three major roads. Road L6 is about 1,500 metres. It was about 1/3 paved with asphalt. There were about a 100 to 200 metres not yet back-filled. For about two/thirds, only one layer of stone aggregates called Type 1 Sub-Base was laid. 50% of kerb stone was done. 90% of drainage was installed. Mr. Oldfield of Government Engineer summed up that with a little. preparatory work, asphalting work worth another $1,000,000 could have been undertaken by Wimpey. The total contract sum of Wimpey was $5 million. Wimpey had completed about 10% of the work. Provided that everything had been as planned, Wimpey could have completed it in 7 months. Unbeknown to Worthy, a settlement was reached with Wimpey in mid January 1985, but there was no explanation given as to why Wimpey had not resumed asphalting. Wimpey's team was 12 to 15 men. An appropriate labour force on the site was said to be in the region of 100-150.Though Wimpey would have been then confined to the L6 road, but its 10% of the total labour force could not be ignored. I accept Mr. Cheung Siu Lun's evidence that delay caused by Wimpey was a contributory factor.

12. Worthy also claimed to have been unable to obtain survey data necessary for the Sub-Contract road works from Wah Sum. The Government Engineer was said to be sympathetic with the unpaid survey sub-sub-contractor and was initially less than co-operative.

13. Workers of Mr. Ngok Chiu were threatened. Ditch work was stopped by unpaid sub-sub-contractors after a few days in November. Only minor clearance work could be undertaken. Even after formal handing over of the site on the 17th December, Worthy was faced with numerous problems and its cement pavement was sabotaged. In early December 1984, Mr.Cheung Siu Lun gave the number working on site as 20.With a full set of survey data, 120-130 men would probably be needed. Later in December, 1984, the number of men on site was raised to 60-70 when a larger force of 150-200 was desired. After the 17th January 1985, there were 35. (See B86). Mr. Chan Chap Shun of F.I.S.A. could see only 4 or 5 Loh Kee men on the L6 road from the site office on the 19th January. On the 28th January, there were 23 inclusive of the 4 staff in the site office. (See B303). On the 29th January, there were 19 inclusive of 5 site office staff. (See B302). Some delay was also caused by the necessity to effect remedial works to a site which had ceased all effective works for quite a few weeks before mid November. But in the circumstances, I accept Mr. Cheung Siu Lun's explanation that Worthy had put in as many workers as the available works demanded.

14. In addition, payment of Worthy's Interim Statement No. 1 was held up by Lingking. Interim Statement No. 1 submitted a claim for $454,232. 69. It was subsequently paid at the agreed reduce sum of $354,422. 93. Lingking was fairly certain that some $300,000 worth of work had been executed, yet it was prepared to come up with an offer of only $250,000.Moreover, the initial offer was less at $120,000 to $130,000 and was made as late as the 21st January 1985. Neither of these offers was accepted by Mr. Cheung Siu Lun.

15. Having worked with an optimum number of workmen for just about a month after the formal handing over of the Shek Wu Hui site in what must be a very difficult condition, Worthy met with yet another disruption when an article appeared in the South China Morning Post on the 17th of January 1985. This press report made a disclosure of a winding-up petition against Lingking. It triggered off removal of machineries in panic by sub-sub-contractors, including Mr. Ngok Chiu's partnership firm, Kin Tat. Mr. Cheung Siu Lun told the court that he was troubled by the news of Lingking's winding-up which was feared to bring about a Government re-entry. As will be explained later, Worthy had by then put in over $2,000,000 worth of works. Mr. Cheung told the Court that he was under pressure from sub-sub-contractors, workmen and materials suppliers who all reacted irrationally and demanded immediate settlement. He took great pains in allaying fears of Ngok Chiu and his partner. He also felt disturbed by the poor impression gained by the Government Engineer. Whatever little confidence in Lingking that Mr. Cheung was left with, it was shaken to the ground. A series of meetings then followed.

16. I do not propose to descend into the endless conflicting versions given by one side or another.   In the main, the defendants claimed that the terms of the compromise finally arrived at by the 28th January 1985 when a new sub-contractor was found and signed on were: First, $500,000 to be paid on the same day to Worthy; secondly, Worthy was to vacate the site by the 30th, i.e. in 2 days; thirdly, the balance of value of works completed by Worthy to be measured and paid by the 12th February, and lastly F.I.S.A. was to guarantee these payments. In fact, the first $1/2 million was promptly paid direct by F.I.S.A. due to the shortage of time.

17. The fundamental difference between Worthy on one hand and Lingking and F.I.S.A. on other was three-fold : 1.Worthy claimed that Lingking agreed in the said compromise to pay its expected profit for the rest of the Sub-Contract, guaranteed by F.I.S.A. This agreement, both Lingking and F.I.S.A. strenuously denied. 2. The alleged calculations and alleged agreement on the measurements set out in Worthy's Interim Statement No. 2 were challenged. 3. Lingking claimed to have reserved in the said compromise its right to claim against Worthy for Worthy's alleged breach of contract on the 17th and 18th of January 1985 after the publication of the South China Morning Post article. Lingking complained that Worthy was reprehensible in such abrupt withdrawal of machinery and its abandonment of the site. Issue was joined on these assertions of breach and reservation of right.

18. After the $500,000 payment made on the 28th January 1985 to Worthy, came 12th February, but Mr. Cheung Siu tun was given a cheque of only $78,034. 20. Lingking and F.I.S.A. had earlier claimed to have paid Worthy in full, but by an amendment made on the first day of the trial, the defendants conceded that some dayworks were outstanding.

19. In accordance with the terms of the said compromise, Worthy vacated the construction site on the 30th January 1985. A new sub-contractor, the joint venture of Messrs. Sun Sun and Messrs. Kwok Wing, had been signed on on the 28th January. In fact, the Government Engineer had already threatened to recommend re-entry by his letter of the 24th January. Subsequent to the new sub-contractor taking possession of the site, on the 7th February re-entry was recommended, and Government re-entered on the 19th March.

20. As for entries in Interim Statement No. 1, Worthy maintained that they had been measured, checked, signed and agreed by Lingking through its Quantity Surveyor, Wong Chi Hung and that whatever effect, if any, Wong Chi Hung's final agreement had, the measurements so taken and the checking so done were ample evidence for establishing the accuracy of the contents of that signed interim statement.

21. Therefore, Worthy had been paid $354,422.93 under Interim Statement No. 1, $500,000 on the 28th January 1985 and $78,034.20 on the 12th February. Worthy's Interim Statement No. 2, having taken into account the earlier two sums, left a net sum of $1,284,394. 71.$1,284,394. 71 less the further $78,034.20 paid on the 12th February would yield a balance of $1,200,360.51, and that is $10 more than Worthy's claim in this action as the unpaid balance of value of its works. I have thus explained the $10 difference. Worthy also claimed loss of profit set out in exhibit "P2".

22. I have sufficiently set the scene in which the disputes arose. Lingking is in liquidation. No point was taken procedurally. Counsel for the defendants had commented generally on the lack of documents and information, but no real difficulty was referred to in the course of the evidence. I will take Worthy's claim against the defendants first. During the negotiation after the South China Morning Post article, three alternatives were for the first time proposed in the afternoon of the 24th January. The parties had no less than four meetings : one on the 21st January; two on the 24th January, morning and afternoon; one on the 25th January and another on the 28th January. All these three alternatives were subject to the successful search for a new sub-contractor. Worthy itself secured an internal consensus to accept the last alternative in a separate meeting of its shareholders later in the afternoon on the 25th January. The defendants only signed on a new sub-contractor just before the meeting of the 28th January; by which time the compromise was finally struck. The three alternatives as proposed were : First, winding up Lingking; second, direct financing up to $10,000,000 from F.I.S.A.; third, substitution of Worthy by a new sub-contractor on terms. I have outlined the different versions given on the terms of the compromise.

23. On the claim for loss of profit, Worthy relied on the defendants' alleged agreement to pay "all  the monies that they had spent on (Sheung Shui) site as well as those Worthy deserved". Of course, it was also agreed that $1/2 million was to be immediately released to Worthy for the discharge of sub-sub-contractors on site with the balance to be paid by the 12th February. F.I.S.A. guaranteed the payment of the balance. Mr. Cheung Siu Lun was to continue as site agent at the request of Lingking and F.I.S.A. It was well understood that Worthy was to be paid for the value of its works completed on that site. What can be readily appreciated is that works executed prior to Worthy's said sub-contract and found defective had to be remedied by Worthy and that works over-measured for whatever other reasons had to be compensated for. These are just probable instances, but it can be visualized that what was done by Worthy prior to its vacation on the 30th January might not necessarily correspond with Government certified items or quantities. In practical terms, as Mr. Cheung Siu Lun explained, "96% based on actual work completed and B.Q. price was not entirely based on the Engineer Certificate. (Worthy) based on actual value completed. " Further, in my view, it is quite plain, that at least as agreed in the said compromise, that works actually executed by Worthy on the site, whether or not government would certify, Lingking and F.I.S.A. could be made responsible for payment.

24. What was principally contested, on value of works done, was Interim Statement No. 2. Worthy claimed that the quantum was, after measurement and confirmation, signed as agreed between itself and Lingking through Mr. Cheung Siu Lun and Mr. Wong Chi Hung. It was contended on behalf of Worthy that such agreement on quantum in Interim Statement No. 2 bound Lingking in every respect or, alternatively that the proper quantum payable had been so proved.

25. On behalf of the defendants, it was argued that by the very use of the word "certified" in paragraph 10 of the Statement of Claim, Worthy had chosen to rely exclusively on the "certification procedure" said to have been laid down in Worthy's sub-contract, which would entail measurements, "discussions amendments, acceptance and the signing by the three, namely Lee Chi Kong and Wong Chi Hung on behalf of Lingking, and Cheung Siu Lun on behalf of Worthy. Thus, it was submitted that as the manoeuvre as testified to in this case fell short of the prescribed "certification procedure", it did not therefore constitute a binding agreement on Lingking. In sum, the alleged "certification procedure" had not been proved, and Worthy had wholly failed on its claim for value of works done. Counsel urged that Worthy should not be permitted to depart from this plea. In my view, paragraph 10 of the Statement of Claim is not susceptible of the meaning sought to be ascribed to it by Mr. Barretto. Further, the compromise made no reference to any "certification procedure" in Worthy's Sub-Contract. I need not decide whether such advocated "certification procedure" can be supported by the contractual provision. What was to be looked for in the compromise was fair and accurate measurements of value of unpaid works of Worthy up to its substitution.

26. The defendants further complained that Interim Statement No. 2 was not presented in time for confirmation before the payment deadline on the 12th February. But according to Mr. Cheung Siu Lun, he and Wong Chi Hung had spend some days in taking and checking these measurements. Mr. Ngok Chiu had observed Cheung Siu Lun's checking with Wong Chi Hung and Lee Chi Shing in the site office with the did of Daywork Record Sheets. Mr. Ngok Chiu gave a checking period of one or two days while Mr. Cheung Siu Lun claimed to have taken seven to ten days. However, despite this discrepancy, if a discrepancy it was, which came from different witnesses apparently on observations made at different times and from different locations, I accept that there was in fact sufficiently reliable checking done jointly by Mr. Cheung Siu Lun and Mr. Wong Chi Hung. I also accept, as Mr. Cheung Siu Lun testified, that the measurements were taken in draft form and Interim Statement No. 2 was a signed fair copy of the agreed measurements in draft. Mr. Wong Chi Hung did not make an appearance in this trial to render his assistance.

27. Interim Statement No. 2 was further criticized in more ways than one. I was not impressed by these criticisms. Mr. Lai also referred me to the claimed quantities which, counsel suggested, would demonstrate, on the assumption that Interim Statement No. 2 covered a period of some three weeks as against the one week for Interim Statement No. 1, that none of them bore any resemblance to an inflated submission. Such comparison is inconclusive and suffers from the uncertainty of imponderables and lack of uniformity. I do not propose to deal with all the submissions, but I should briefly comment on some of them. An item 2/21/D (B107) in Interim Certificate No. 2 for Headwall was discarded, as can be seen in Government Engineer's final accounts "D3", page 2/21, item D. Mr. Barretto, Counsel for the defendants, charged that this deleted item for Headwall had deliberately been presented on a false basis instead of under "variations" in B115 to inflate Worthy's claim. The contra-submissions of Mr. Lai sounded just as probable. Mr. Lai suggested that there was no evidence to explain what particular item had to be exclusively included under these "variations" for B115.  But I accept the explanation offered by Mr. Cheung Siu Lun. Mr. Cheung told the Court that despite cancellation of the Headwall, some extra site works had been done and properly billed as item 2/21/D.

28. Interim Statement No. 2 was a final version authenticated by Mr. Wong Chi Hung on behalf of Lingking and Mr. Cheung Siu Lun on behalf of Worthy. Both were professional men. Mr. Cheung, an engineer, and Mr. Wong, a quantity surveyor. Mr. Wong earned only $4,000 a month, and had been preparing Lingking's tenders under the supervision of a Chief Quantity Surveyor. However, Mr. Wong must have had experience, working on both quantities and calculations in the tender documents. He was frequently sent to the construction site when tender works were scarce. Mr. Wong could be expected to be competent in such not dissimilar chores.

29. Throughout, F.I.S.A. and Lingking were well represented on site. Mr. Ngai Yiu Cho, a general site foreman formerly in the employ of Lingking before he had an encounter with I.C.A.C., continued in the capacity of what Mr. Chan Chap Shun described as "informant" for F.I.S.A. Ngai was also understood by Mr. Cheung Siu Lun as F.I.S.A.'s general site foreman. The names of Mr. Chan Yiu Fung, Deputy Manager, and Leung Wai Kwan, sub-site agent both of Lingking were mentioned. There were also Lee Chi Fu and Mr. Hubbard, all from Lingking involved with this construction site. It is inconceivable that if indeed Mr. Kong Chi Hung had entertained any doubt as to measurements, pricing and calculations, he would not have taken the advantage of the accessibility of some of these Lingking and/or F.I.S.A. staff.

30. Moreover, this trial had taken as many as 31 days. No indication was given as to any possible difficulties in seeking verification from Mr. Wong or the other site staff except for Mr. Hubbard who was no longer in Hong Kong.

31. Further criticisms levelled at Worthy's Interim Statement No. 2 were : Whilst Interim Statement No. 1 contained symbols of approval in the form of ticks, except for some B.Q. items of Loh Kee and Shine and some materials, Interim Statement No. 2 had none. The answer to it might very well lie, as Mr. Lai suggested, in possibly the different nature of these interim statements at A71 and B104. Interim Statement No. 1 was a copy of calculations for approval, and it was extensively amended. Interim Statement No. 2 stemmed from a draft which had been wholly processed and corrected. It was a fair copy with all agreed final amounts ready for signature. It was further said on behalf of the defendants that unlike Interim Statement No. 2, Interim Statement No. 1 contained, at A78, A79, A80, references to Daywork Record Sheets. Ngok Chiu told the court that he had seen the Daywork Record Sheets used in the site office for taking and checking measurements. Mr. Cheung also explained how Daywork Record Sheets were prepared, agreed and used for interim statements. In the end, these matters failed to make me doubt the accuracy of the information contained in Interim Statement No. 2.

32. More insinuations were to come : it was said on behalf of the defendants that Bills Nos. 1 to 6 given in the Summary of Interim Statement No. 2 at B104, reflected a figure obviously inflated by some $582,101.94. $582,101.94 represents the difference between the total of Bills Nos. 1 to 6 in the Interim Statement No. 2 at B104 and the certified total of the same bills given in Certificates 21 to 23, (i.e. $1,506,507.60 - $924,405.66 = $582,101.94). Mr. Lai, Counsel for Worthy, offered a possible explanation. Counsel referred me to items 3 and 5 in Lingking's calculations at B295 which was said to be based on the same Government Certificates. Counsel pointed out that Government had earlier disallowed 15 items and that of these 15 previous "over-measurements", only 9 (leaving 6 as being still disallowed) were subsequently accepted. See Government Certificate 23. At an earlier time, Government had also disallowed 8 "over-measurement" under Certificate 22. Subsequently, of these 8 previous "over-measurements", 6 were admitted leaving 2 still being excluded. Of course, we know not the reasons behind such earlier rejections and later re-admissions, but the total of these remaining 8 items, still being so excluded or disallowed; came to $539,523.30. Assuming these excluded or disallowed "over-measurements" to be forming part of the unpaid works executed by Worthy in Interim Statement No.2, Mr. Lai suggested that the $½ million difference between Interim Statement No. 2 and Certificates 21 to 23 (i.e. Worthy's B104 and Lingking's B296 based on these certificates) could have been explained. This involves a fair amount of speculation and some play with available numerals, but I suppose the lesson is that Interim Statement No. 2 has not been truly demonstrated to be defective.

33. Much was also sought to be made of "General Preliminaries". It was suggested that in the last certificate and hence in Interim Statement No. 2, Worthy attempted prematurely to claim all "General Preliminaries". Mr. Lai for Worthy took exception to this observation if only because Mr. Cheung Siu Lung was never cross-examined on this topic. In retort, Mr. Barretto explained that in Mr. Cheung's own letter to the Government Engineer dated the 26th January 1985 (B264), the whole of these "General Preliminaries" was sought to be included. I was not assisted further. When one examines Worthy's calculations for alleged loss of profit in "P3" and its translation "P2", "General Preliminaries" i.e. setting-up expenses for this project were claimed as the first item in the sum of $1,558,000.I should have thought that when "General Preliminaries" were being claimed under loss of profit, Worthy would not have duplicated this claim in Interim Statement No. 2. I assume, of course, that there was no such repetition. In any case, the defendants' charge cannot be conclusive. Even if Interim Statement No. 2 had contained a claim for "General Preliminaries", apart from the question of duplication, I am not wholly persuaded that Worthy had less than good reason for claiming all setting-up expenses as sub-contractor when it was invited to leave the site after the whole contract period. As Mr. Cheung Siu Lun explained in his said letter of the 26th January, "the original contract completion date has now expired and the whole of the works is still not completed yet, ...... we therefore consider that we should be entitled to an 100% full payment" of "General Preliminaries". Further, if "General Preliminaries" had been included in Interim Statement No. 2, that was checked and agreed to by Mr. Wong Chi Hung for Lingking. Mr. Wong Chi Hung had not come forward to offer any explanation. However, it would seem that "General Preliminaries" had probably not been claimed in Interim Statement No. 2 but only in item 1 of the loss of profit calculations, "P2". I am not persuaded, therefore, that Interim Statement No. 2 has been inflated by this or any other item.

34. My attention was also drawn to one of the dates on Interim Statement No. 2 which appeared to have been corrected. That must be very peripheral.

35. I have not been driven by any evidence to doubt the accuracy of the measurements contained in Interim Statement No. 2. On the balance of possibilities, I find that these measurements are accurate and that the correctness of these measurements was duly agreed to by Mr. Wong Chi Hung on behalf of Lingking and the absence of Lai Chi Kwong's signature on behalf of Lingking would not make that document less binding on Lingking. In conclusion, Lingking accepted these measurements without reservation and was bound by them. Mr. Wong Chi Hung would have refused to sign this fair copy in Lingking's office if there had been any matter to clear up. Whether or not these measurements would, in effect, conclusively bind Lingking, I find that works as reflected by these recorded measurements had been executed by Worthy on the viva voce evidence in conjunction with Interim Statement No. 2. I find Worthy's claim proved, and judgment is therefore given as claimed in the sum of $1,206,350.51, though strictly speaking $10 less, against both defendants.

36. That is not Worthy's only claim. Worthy further claims loss of profit, the calculation of which appears in "P2". Attack was mounted on these calculations, but I accept them as, on the whole, a genuine and fair estimate. However, it was conceded that the claim for loss of profits must be reduced by 7.37%, representing payments with a built-in profit margin already received.

37. The question that lay at the heart of Worthy's further claim was the alleged term to pay loss of profit in the compromise, which had superseded all the parties' obligations and liabilities under the sub-Contract. Was loss of profits so agreed in the compromise to be paid by Lingking as guaranteed by F.I.S.A.? It was claimed on behalf of Worthy that it was promised what it deserved. Mention was made by Mr. Cheung Siu Lun to the request of Worthy for what Worthy was entitled to in addition to the value of the unpaid works done. Loss of profit to the extent of $2,365,120, even less 7.37% is by no means a meager claim. One would have thought that Mr. Cheung Siu Lun would have been more precise if he had meant to ask for loss of profit. Although Worthy had no cash flow problem and though the responsibility for slow and unsatisfactory site progress was not to be shouldered by Worthy (the reasons for these observations will be given later), a stage had been reached that Worthy was truly keen to be relieved of its obligations under the Sub-Contract. Working condition had become unbearable and risk had grown much greater. Worthy must have been content to have secured payment for all its investments sunk in plus a built-in margin of profit, without having to take further chances with the balance of the sub-contract works in an explosive situation. It would have been against all common sense for Worthy to have asked for or insisted on payment of the entire profit under the Sub-Contract which had yet to be completed by another sub-contractor. If indeed loss of profit had been demanded by Worthy, what would have been left for those concerned with the completion of the Government Building Contract? In fact, Mr. Cheung Siu Chi could not even recollect, when pressed by Worthy's Counsel, whether there was a firm agreement to pay loss of profit. He also could not remember whether Mr. Chan Chap Shun, the leader in the negotiation for Lingking and F.I.S.A. expressed any views on loss of profit.

38. Even after the compromise, at a meeting on the 8th February when the alleged intimidating   telephone call to the wife of Chan Chap shun was at issue, Mr. Cheung Siu Lun's account of what transpired cannot, in my view, justify any claim for loss of profit :

Court : "They would pay what we are entitled to receive".

Interpreter : Yes. "

39. Worthy's claim of such mammoth loss of profit as an agreed item in the compromise cannot be founded on such obscure assertions. On the balance of possibilities, I find that the claim of loss of profit by Worthy has not been established. There was, I find, no such agreement, whatever connotation that part of the vague conversation carried.

40. Mr. Lai, Counsel for Worthy, sought to boost his client's claim for loss of profit by relying on some inexact observations made by Chan Chap Shun and/or Kwong Wai Tim. Chan Chap Shun himself made no real admission to the alleged agreed term to pay loss of profit, but he referred to an outburst of Dr. Wong of F.I.S.A. Mr. Chan Chap Shun agreed that on the 8th February 1985, in the heat of argument arising from an alleged intimidating telephone call to Mrs. Chan, Dr. Wong remarked to Ngok Chiu and Cheung Siu Lun in these words : "I sue you and you sue me. It may end up I owe you $100,000,000 or you owe me $100,000,000. We are honourable people. I can assure you we will pay you everything you deserve. " Mr. Chan Chap Shun also gave a somewhat strained explanation that Dr. Wong's comment was directed at the said threatening telephone call. Dr. Wong did not give evidence. Mr. Kwong Wai Tim admitted that Lingking and F.I.S.A "were asked to pay (Worthy) all they were entitled to". Then he immediately corrected himself by saying : "- all their monies in connection with the work".

41. What Worthy was entitled to, what Worthy deserved, conveyed some meaning to all these personalties involved, but I am not satisfied that there was an agreement to pay Worthy loss of  profit. Worthy's own flimsy evidence on loss of profit can, in no way, be propelled into a valid claim by the unclear and prevaricating answers given in evidence on behalf of the defendants. I do not, therefore, find Worthy's loss of profit claim proved.

42. Judgment is therefore given to Worthy in the sum of $1,206,350.51 against the both defendants, with interest thereon at, provisionally 8% per annum from the 12th February 1985 to to-day. Interest after the judgment is regulated by Chief Justice's directions.

43. I turn next to Lingking's counterclaim which may be promptly disposed of. Whoever was in breach of the Sub-Contract, the compromise was an overall settlement. Lingking would never have agreed to pay for value of unpaid works executed to the tune of almost $2,000,000 ($500,000 + $78,034.20 + the unpaid balance now found due at $1,206,350.51), if it had considered itself having a valid claim in breach of contract against Worthy. Worthy was not warned of any such reservation. In fact, no reservation was discussed. If indeed Worthy had had to be appeased so that it would leave the site as soon as possible with the least dislocation, there would have been more the reason for not raising the subject of a counterclaim for breach of contract.

44. Lingking claims $5,000,000 for loss of licences plus a bald estimate of a very substantial sum of damages. By the time of the compromise, risk was running high in the Sheung Shui site. But there was obviously still a reasonable chance for a new sub-contractor to be brought in, i.e. the joint venture of Sun Sun, Kwok Wing. If the situation had been felt by Lingking to be truly hopeless or irretrievable, Lingking would have been more vocal on a possible claim for breach of contract and less enthusiastic in making an effort to bring in a new construction firm.

45. The new sub-contractor (Sun Sun, Kwok Wing joint venture) came on the site with 35 men and 6 sets of equipments. Such inadequate labour force was not increased. Works had to be completed in 6 months. The new sub-contractor even failed to secure the requisite $2 million guarantee. (See B99 and B100). Despite forceful cross-examination of Mr. Cheung Siu Lun, I find him properly serving Lingking and discharging his duties as site agent after the entry of the new sub-contractor. I also find that as agreed Worthy, had kept a nominal force on site until its vacation to prevent creating an impression of total stoppage but that Sun Sun, Kwok Wing were unable to increase performance with an under-staffed site team of approximately 35-37. (See also A156). Sun Sun, Kwok Wing had apparently problems in recruiting workmen during the Chinese New Year, but essentially it would seem to be a matter of finance. Mr. Chan Chap Shun suspected Sun Sun, Kwok Wing to have lost the support of their financier. Mr. Chan Chap Shun himself summed it up : Sun Sun, Kwok Wing let Lingking and F.I.S.A. down. When Sun Sun, Kwok Wing took over as sub-contractor, there was, so to speak, a sporting chance. In my view, it was the faults of the new sub-contractor that ultimately drove Government to re-enter. Worthy was not to blame.

46. It is quite unnecessary for me to refer to many of the other side issues. But much time was spent on these controversies, and I will record some of my findings on these wide-ranging debates, which seem to be less remote.

47. It was initially pleaded in paragraph 12 of the Amended Defence and Counterclaim that the balance of the value of works done by Worthy was agreed to be $578,034.13. That represents approximately the $500,000 and $78,034.20 already paid as aforesaid. In the Further and Better Particulars of the defendants, it was averred that in fact a sum of $661,376.37 was at first orally agreed as such outstanding balance between Mr. Wong Chi Hung of Lingking and Mr. Cheung  Siu Lun of Worthy on the 8th February 1985 but that that $661,376. 37 was subsequently reduced to $578,034.13 some 4 days later on the 12th February 1985 in an oral agreement between Mr. Sit of Lingking and Mr. Cheung of Worthy. On the first day of trial, the defendants' paragraph 12 was amended to exclude from the amount so agreed to be reduced and so reduced Worthy's "dayworks". No evidence was led on these alleged oral agreements. Mr. Wong was not called; nor was Mr. Sit.

48. As for dayworks, it was complained that although the extra works were agreed to be billed on the basis of dayworks, they had not been approved in advance as required by Clause 6 of the Sub-Contract. However, it can be seen from a memorandum of Mr. Cheung Siu Lun to Lingking dated the 14th December . 1985 (A38) that urgency virtually demanded extra works to be immediately undertaken so as not to hamper the progress of the overall works. Further, Mr. Chan Chap Shun conceded that works without prior approval would still have to be paid after assessment, discussion and agreement, but he claimed to be then unaware of any outstanding claim for consideration after the payment to Worthy of $78,034.20. He relied on, inter alia, the voucher (B294) which contained no reference suggestive of any settlement of the final account. When Mr. Cheung Siu Lun endorsed on the copy of the cheque for this much explained sum (B293) acknowledging receipt of only part of the value of the unpaid balance of works done, he reprimanded Mr. Cheung for being a nuisance and threathened to stop payment on the amount of that cheque. Mr. Chan explained in evidence that having now perused the documents, he realised that Worthy still had an outstanding claim to be properly ascertained but that Worthy remained unpaid simply because it abruptly instituted these proceedings without any further consultation. Mr. Kwong Wai Tim claimed that Mr. Cheung Siu Lun was silent on receiving this cheque for $78,034. 20, but I accept Mr. Cheung's version that his protest to Mr. Lee Kin Wah was of no avail and that the defendants avoided Worthy thereafter. I also find Ngok Chiu as having unsuccessfully pressed for payment. Mr. Chan Chap Shun's explanation seemed strained, particularly in the light of these alleged agreements in the said Further and Better particulars under paragraph 12 of the Amended Defence and Counterclaim, which had never been withdrawn. It is difficult to imagine how Mr. Chan, faced with a $1,206,350.51 claim on Interim Statement No.2, could have allowed himself to be so inactive since the commencement of this action in March 1985. It is equally hard to believe that Mr. Cheung would have been prepared to accept only $78,034.20 out of a claim of $1,206,350.51 and in silence. Human conduct is not generally that whimsical. Even the defendants themselves made an effort in the Further and Better Particulars of paragraph 12 of their Defence and Counterclaim to explain some kind of agreed deduction to $78,034.20 on the 12th February. That averment was never sought to be substantiated. All this somewhat reinforces my finding that Interim Statement No.2 was indeed agreed and binding.

49. Much play was made of the removal of machinery after the publication of the South China Morning Post article. It was a reasonably prudent step to take if only to avoid having to reclaim them from Government after re-entry. Of course, it was not strictly justifiable under the provisions of the Sub-Contract. Both Mr. Ngok Chiu and Mr. Cheung Siu Lun were hard pressed in reconciling a wise practical decision with contractual obligations. Mr. Cheung was unable to satisfactorily explain his notification in Worthy's letter to Lingking dated 18th January 1985 (A100 at A101) : "To safeguard our interests on this site we have to remove our own construction machineries to avoid further loss when the site was taken over by the Government". This is also peripheral. The crux of the matter is that Worthy never intended to and did not abandon the site. The withdrawal of the machinery was obviously a temporary measure taken in wait for the crisis to pass.

50. Worthy was criticised for causing delay. The problems Worthy was confronted with were inherited and were not brought about by any wrong doing or inaction on its part. In paragraph 19 of the Amended Defence and Counterclaim, the defendants charged Worthy with failure to assign an adequate or competent labour force to the construction site. Particulars of such a charge ranged from (a) to (g), but no evidence was called to support any of these charges.

51. Then it was submitted that Worthy's liquidity problem was the cause of all these ills on the construction site. It was pressed upon me that an inadequate cash flow was admitted by Worthy in its memorandum to Lingking dated the 12th of January 1985 (A91). In my view, on a fair reading of this memorandum, Worthy was merely seeking prompt payment so as to "ensure (a) smooth cash flow". After the submission of Interim Statement No. 1, Worthy declined an offer of immediate payment of $120,000-$130,000. Worthy was able to resist it even when the offer was raised to $250,000. Worthy was apparently not in need of any immediate relief and was sound enough to wait during its negotiation for an overall settlement on that interim statement. Eventually Worthy was paid $354,422.93 on that first interim statement after the 21st January. It was conceded by Kwong Wai Tim that an average labour force of the size of Worthy's i.e. 50 to 60 from 24th December 1984 to 17th January 1985 would probably generate about $1,000,000 worth of works. On that concession, it is probable that Worthy had sunk in at least $1,350,000.Initially, Worthy could not have suffered from lack of fund, but it must have been progressively embarrassed by Lingking's delay in payment and the sensitive reaction of the sub-sub-contractors.

52. It was also suggested that Worthy's credit was significantly affected by the refusal of Mr. Chan Man Chuen of Luen Cheung Tai to join. For the reasons I am about to give, I find that Chan Man Chuen never agreed and was not expected to participate. Mr. Kwong Wai Tim alleged that he had obtained prior confirmation of Chan Man Chuen to be a party to the Sub-Contract before its signing. This allegation was not pleaded in paragraph 4A (4) of the Amended Defence and Counterclaim; nor was it put to Chan Man Chuen. At the time of the signing of the Sub-Contract on the 17th November, Chan Man Chuen was absent. Mr. Chan Chap Shun's version of the given reason for his absence was quite different from that of Mr. Kwong Wai Tim's. According to Chan Chap Shun, he was told that Chan Man Chuen was in China, but according to Kwong Wai Tim he was told that Chan Man Chuen was not free to come. Further, Kwong Wai Tim must therefore have expected Chan Man Chuen to come forward as a party to the Sub-Contract, but when he later allegedly chased after Chan Man Chuen to sign, he said he enquired whether Chan would sign as guarantor. That was not all. The reply of Chan Man Chuen was said to be that "he would look into it". Kwong Wai Tim also gave this Court his impression "that he (Chan) was quite cool and not serious". It was a "short and simple conversion". Why Chan Man Chuen was asked to sign as a guarantor instead of a contracting party was not explained. In the face of a cool reception, Kwong Wai Tim did not appear to be indignant; nor did he accuse Chan of prevarication. I find in Mr. Kwong Wai Tim an impatient witness, at times during cross-examination bordering arrogant. Chan Man Chuen denied such telephone conversation with Kwong Wai Tim. I prefer Mr. Chan's evidence. It was alleged that Chan Man Chuen signified his consent to become a guarantor by a mere nod of the head. A guarantor's liability in this case was expected to be burdersome. An undertaking of this magnitude calls for direct evidence of an unambiguous acceptance. If Chan Man Chuen had previously agreed to act as a guarantor, it was not explained why Mr. Kwong was seeking his agreement to sign. Mr. Chan Man Chuen denied that he was ever personally interested or that he agreed to guarantee Worthy. I accept his evidence.

53. According to Cheung Siu Lun, on a site visit by Dr. Wong and Kwong Wai Tim shortly after the formal handing-over to Worthy, on being told of Mr. Cheung's anxiety as to Lingking's financial capability, they agreed to give Worthy letters setting out in clear terms the ambit of F.I.S.A.'s guarantor liability. These letters, one for interim statements and one for extra works, were accordingly given some four days later on the 21st December 1984 (A54 and A55). Cheung Siu Lun maintained that at the time there was no request for Mr. Chan Man Chuen to sign the SubContract as a party or as a guarantor.

54. The defendants sought to use these very same letters as evidence of Worthy's alleged cash flow problem. The allegation was that Worthy sought these letters in support of its application for a bank Performance Bond to compensate for the absence of Chan Man Chuen as a guarantor. Cheung Siu Lun gave his above different version for these two letters, and Mr. Cheung claimed that the question of a Performance Bond was, for the first time, raised at a meeting on the 24th December 1984 around 3 p.m. and that he managed to make an unsuccessful approach to a bank for the reasons set out in his memorandum dated the 25th December 1984 to Lingking (B64). Mr. Cheung further explained that as a rule he would immediately reply to a request from his counterpart and that from this memorandum, he could recall precisely that Lingking's request for a Performance Bond was made the day earlier, on the 24th. It was not put to Mr. Cheung that the Performance Bond was sought on account of Chan Man Chuen's refusal to participate. I accept that the request for a Performance Bond was made on the 24th. Therefore, letters A54, A55 of F.I.S.A. spelling out precisely its guarantor's liability could not have been given with a view to enabling Worthy to obtain the Performance Bond. This is another one of the side issues, but I accept the evidence of Mr. Cheung Siu Lun that at the time of these two letters Worthy had no cash flow problem. Naturally, as Cheung Siu Chi explained, by the time when Lingking continued to withhold Worthy's Interim Statement No. 2, Worthy's capital on hand was no longer adequate. Then came the Sourth China Morning Post publication. There is no reason to doubt Mr. Cheung's statement that if Worthy's Interim Statement had been met punctually, Worthy could have carried on with the Sub-Contract without difficulty. After all, Worthy had proceeded with, on a difficult site, over $2 million's worth of works.

55. In conclusion, I find that Worthy had not been in breach. Even if Worthy could have been taken, in any way, as being at fault under the Sub-Contract, the parties had reached an overall settlement without any reservation in the compromise. In any case, damages flowing from the ultimate re-entry were wholly caused by the default of the new sub-contractor, Sun Sun, Kwok Wing. In my view, Worthy cannot be held liable for such damages, if any.

56. Very brief reference was made to an interested party, Contact Limited through a Mr. Fletcher, in Lingking's licences. Lingking was in troubled water. Its total liability to F.I.S.A. reached $20 million. I am not prepared to accept such brief reference as sufficient proof for the value of or loss in these licences. None from Lingking's former office was called to elaborate on these licences. Mr. Chan Chap Shun described Lingking as "completely not healthy". There was no evidence whether any bid had been made. Contact Ltd. was mentioned in passing as a name of a party interested. We do not know what real interest Contact Ltd. had, if it was indeed substantial enough to make an offer. No reliable evidence had been, in my view, adduced to prove value of these licences. As for other special damages, the court was left with a statement that full particulars could only be given later after completion of the works. I was invited to defer assessment of these damages. The liquidator of Lingking did not come to explain what difficulty, if any, there was in the assessment. In the light of all the circumstances, I must refuse to grant the indulgence. In consequence, Lingking has failed to prove to my satisfaction any damages.

57. Mr. Oldfield was not sympathetic with the defendants. He seemed to favour Worthy, whose presence he did not even formally recognize. His evidence that Lingking's failure was brought about by lack of finance and incompetence was, in my view, a mere expression of his personal opinion, and I do not seek to rely on it.

58. A great many issues had ultimately become irrelevant. In these proceedings, the defendants repelled Worthy, almost throughout, in its attempt to recover the value of unpaid works executed. My observation should not, in any way, be taken as being critical of Mr. Barretto who discharged his duty as Counsel only exemplarily. Mr. Lai, Counsel for Worthy, was understandably extra cautious. These proceedings were drastically prolonged. I am tempted to award cost in favour of Worthy on a higher scale. Worthy has taken considerable time but failed to establish its claim for loss of profit. Instead of awarding costs against the defendants on a higher scale and awarding costs to the defendants on Worthy's claim for loss of profit, I would simply give costs of whole action to Worthy on the usual scale. Costs in the counterclaim must also go to the plaintiff. Provisionally and subject to what counsel have to say, I order accordingly.

Representation:

Mr. T. Lai (S.H. Chan & Co.) for plaintiff

Mr. R. Barretto (Samuel Soo & Co.) for defendants