Chun Yip Engineering Co (A Firm) v. Sil Vercord Ltd

Case No.HCA 8535/1996

Court

High Court CFI

Date26 Feb 1997

Judge—

Case Document

100%Judiciary

HCA008535/1996

1996, No. A8535

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN
	CHUN YIP ENGINEERING CO. (a firm)	Plaintiff
	AND
	SIL VERCORD LIMITED	Defendant

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Coram: Master Chung in Court

Date(s) of Hearing: 17 February 1997

Date of Judgment: 26 February 1997

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ASSESSMENT OF DAMAGES

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Introduction

The Plaintiff's claim in this action is for interim payments for work done by the Plaintiff as the Defendant's sub-contractor in various construction works orders placed by the Hong Kong Government as the employer and for interest thereon. There was also a claim for loss of profits which has been abandoned.

2.The Plaintiff took out an Order 14 application on 21 August, 1996. On 16 September, 1996, Interlocutory Judgment was entered in favour of the Plaintiff with damages to be assessed. This is the Judgment on the assessment of damages.

Representation of the Parties

3.At the beginning of the hearing, Mr. Cheuk Tit-hop asked for leave to represent the Defendant company in the hearing for assessment. Mr. Cheuk claimed that he had been authorized by the Defendant to represent it. However, when the Court asked for the circumstances under which he was authorized, it became clear that Mr. Cheuk was only "orally authorized". There was no board or other resolution by the Defendant to such effect and the only written authorization for Mr. Cheuk to represent the Defendant was (according to Mr. Cheuk) given some 2 years ago in relation to another unrelated action.

4.In the circumstances, I refused Mr. Cheuk's application for leave to represent the Defendant. Technically speaking, therefore, the Defendant is absent. However, seeing that Mr. Cheuk was present at the hearing, I allowed him to participate for the benefit of the Defendant. On that basis, he was allowed to ask questions of the Plaintiff's witness(es) and to make submissions to the Court. In any event, no relevant question was put to the witness and no submissions were made.

The Nature of the Plaintiff's Claim

5.The following heads of claim have been set out in the Statement of Claim of this action:-

	(a)	a due portion of the interim payments payable by the Defendant to the Plaintiff;
	(b)	interest on the said interim payments;
	(c)	loss of profits of the Plaintiff.

At the beginning of the hearing, Mr. Mak for the Plaintiff informed me that the claim for loss of profits is abandoned. I therefore need only to deal with the heads of claim set out in sub-paragraphs (a) and (b) above.

(1) Interim Payments

6.This head of claim arose from a number of works orders of the Hong Kong Government. The Government would contract these works orders to one Collections Interior Limited ("CIL") which in turn would sub-contract them to the Defendant. The Plaintiff was a sub-contractor of the Defendant responsible for building work in these works orders.

7.The basis of this head of claim was set out in the Statement of Claim as follows: "the Defendant undertook to pay to the Plaintiff 84% of all contract sums within 7 days upon its [the Defendant's] receipt of the same from CIL and/or the Architectural Services Department" (para. 3(c)(1) thereof).

8.It became apparent in the course of the hearing (from the testimony of Mr. Chan Chi-tak) that this is based on an oral agreement made between one Mr. Leung Hung-pong of the Plaintiff and one Mr. Chan Kai-hung of the Defendant in about March, 1993. The gist of the agreement is as follows:-

	(a)	the Defendant, as sub-contractor of the various works orders placed by the Government, further sub-contracted the building work of these orders to the Plaintiff;
	(b)	the fees payable to the Plaintiff by the Defendant were as follows:-

	(1)	in every works order issued by the Government, the proportional payment to different sub-contractors undertaking different kinds of work of that project would be set out in the works order;
	(2)	16% of the overall contract sum of each works order would be retained by the Defendant;
	(3)	of the remaining 84%, the Plaintiff would be paid a portion of each of the interim payments for each works order. This was to be calculated by reference to a proportion which the estimated value of the builder's costs (as set out in each works order) bears to the total estimated value of that order (also set out in that order);
	(4)	the said sum would be due and payable as and when each interim payment has been certified and the certified sum has been received by the Defendant.

This is quite different from what has been pleaded in the Statement of Claim (although the averment in this part of the Statement of Claim has in fact been repeated in the affirmation in support of the Order 14 application as well as in Mr. Chan's witness statement (which he adopted as his testimony)). Nevertheless, for present purposes, I shall consider that the difference was the result of the misunderstanding on the part of the drafter(s) of these court documents.

9.The quantum of this head of claim was originally set out in Schedule II of the Statement of Claim. However, at the beginning of the hearing, Mr. Mak informed me that that was inaccurate and a revised "Schedule of Interim Payment withheld by the Defendant" ("the revised schedule") was submitted by him to replace the said Schedule II.

(2) Interest on Outstanding Sums

10.It is the Plaintiff's case that the Defendant is liable to pay to the Plaintiff interest for these outstanding sums from the respective times when they fell due and payable and up to the date of payment. The Plaintiff said the rate of interest should be at 2% above the prime rate by reason of an agreement made between the parties by way of a course of dealing.

	The Evidence in Support of the Claim
	(1) Interim Payments

11.In relation to the claim for a portion of the Interim Payments, the following evidence was adduced by the Plaintiff:-

	(a)	the testimony of a Mr. Chan Chi-tak;
	(b)	the documents contained in the Bundle of Documents for use in the hearing (at pp. 1 to 22 and 39 to 119 thereof).

12.The testimony of Mr. Chan was not challenged by Mr. Cheuk who indicated that he had only one question for the witness. The only question raised by Mr. Cheuk was that some of the works orders had not been finalised. However, in view that this is only a claim for interim payments and that there is no counterclaim, I disallowed this question as irrelevant. The relevant works orders can be found at pp. 39 to 119 of the Bundle of Documents.

13.There are 2 points which the Plaintiff needs to establish in relation to this head of claim:-

	(a)	the percentage share of the interim payments which the Plaintiff was entitled to in respect of each of the works orders in question;
	(b)	whether or not all or any (and if so which) of these were due and payable to the Plaintiff.

14.According to Mr Chan's testimony, the Plaintiff's portion of the interim payments was agreed between the Plaintiff and the Defendant (this has been set out in para. 8 above) being such proportion which the estimated value of the builder's costs as set out in each works order bears to the total estimated value for that order.

15.However, when calculations were made on this basis, it was found that the portion of interim payments which the Plaintiff would have been entitled to for the various works orders in question would be quite different from those set out in the revised schedule. I will set out the differences below:-

[NOTE:

the percentages set out in the last 2 columns of the table below have not taken into account the 16% of the contract value to be retained by the Defendant as agreed by the Plaintiff.]

Page in Documents Bundle	Works Order No.	Total Estimated Value of the Order (HK$) ["a"]	Estimated Value of Builder's Costs in the Order (HK$) ["b"]	% Agreed Share for Calculating Interim Payments [b/a]	% Agreed Share According to Revised Schedule
88	12385-8	490,000	270,000	55.1	77.33
85	12390-5	700,000	270,000	38.57	74.67
62	12441-4	205,000	85,000	41.46	41.46
58	12464-2	90,000	40,000	44.44	44.44
57	12468-4	525,000	450,000	85.71	85.71
55	12474-9	180,000	60,000	33.33	34.01
52	12495-1	410,000	300,000	73.17	81.30
51	12496-9	178,000	100,000	56.17	59.14
50	12497-7	510,000	350,000	86.96	86.96
49	12498-5	379,500	330,000	86.96	86.96
48	12499-3	135,000	80,000	59,25	65.84
47	12500-4	140,000	80,000	57.14	63.49
46	12503-8	37,000	20,000	54.05	60.06
45	12504-6	165,000	100,000	60.60	61.84
44	12508-8	37,000	20,000	54.05	60.06
43	12509-6	4,800,000	2,000,000	41.67	41.67

16.There are other differences further to the ones set out above. At pp. 1 to 22 of the Bundle of Documents are (according to Mr. Chan) the "Interim Payment Certificates" of the main contractor, CIL. Mr. Mak submitted that these documentary records prove (a) the percentage of the share which the Plaintiff was entitled to under the agreement; and (2) that the amounts claimed in this action were due and owing. These documents were included in a Hearsay Notice dated 14 February, 1997. As the Hearsay Notice was served out of time, Mr. Mak applied, and was given an order, for an extension of time for doing so. After examining these documents, it appears that they were periodic records showing inter alia cumulative amounts payable to the Plaintiff.

17.For some of the works orders, the percentage share under the column "% of builder's works" in the "Interim Payment Certificates" of CIL are different from those set out in the revised schedule. Discrepancies can be found in relation to the following works orders:-

No.	Works Order No.	% in CIL Documents	% in Revised Schedule
1	12464-2	52.39	44.44
2	12474-9	33.33	34.01
3	12495-1	73.17	81.30
4	12496-9	42.02	59.14
5	12497-7	68.63	76.25
6	12499-3	30.19	65.84
7	12500-4	35.56	63.49
8	12503-8	40.82	60.06
9	12504-6	52.91	61.84
10	12508-8	40.82	60.06

18.None of these discrepancies have been drawn to my attention at the hearing and they were only discovered when I examined the documents afterwards. Naturally, none of these discrepancies have been dealt with or explained by the Plaintiff. At present, therefore, the matter is in a highly unsatisfactory state.

19.Further, the Plaintiff's evidence on the issue of whether or not the interim payments claimed have fallen due and payable is also highly unsatisfactory. The only evidence relating to this is hearsay in nature. Mr. Chan testified he had been told that the relevant interim payments had been released by the employer to the main contractor. There is no hearsay notice covering this part of Mr. Chan's testimony. In the circumstances, I do not think that it is right for me to have regard to this piece of evidence in the absence of any supporting documentary evidence. It is, moreover, unclear as to whether the sums stated in the column "Net Amount to Chun Yip" of CIL's "Interim Payment Certificates" refer to:-

(a)	sums payable to the Plaintiff under the works orders (but not necessarily due and owing); or
(b)	sums already received by CIL (as opposed to being received by the Defendant).

Even if I give the benefit to the Plaintiff and find the sums to refer to those already received by CIL, it still does not prove that these sums are already due and owing to the Plaintiff. This is because according to the Plaintiff's evidence, those sums would only be payable to the Plaintiff after they have been received by the Defendant. Such evidence is at present totally lacking. I cannot be satisfied on the materials now before me that the sums set out in the revised schedule are and were at the commencement of this action due and owing by the Defendant to the Plaintiff.

(2) Interest on Outstanding Sums

20.The evidence purporting to support this head is as follows:-

(a)	Mr. Chan Chi-tak's testimony;
(b)	documents from the Defendant showing that the Defendant charged the Plaintiff a specific rate of interest for sums lent by the Defendant to the Plaintiff (at pp. 23 to 29 and 30 to 38 of the Documents Bundle).

21.In summary, Mr. Mak submitted that the Plaintiff is entitled to claim the rate of interest set out in the Statement of Claim because the Defendant used to charge the Plaintiff this rate of interest. He submitted that there was an agreement reached between the parties by way of a course of dealing between the two. However, this "course of dealing" was only related to the interest charged by the Defendant on the Plaintiff. No evidence was adduced to prove (nor was it otherwise suggested) that there was a course of dealing where the Plaintiff has previously charged the Defendant this rate of interest.

22.It must be borne in mind that for the Court to imply a term (assuming that an agreement exists), the implied term must be one which is not only reasonable but also necessary so as to give business efficacy to the agreement. It may be reasonable that because the Defendant used to charge this rate of interest, the Defendant should pay the Plaintiff the same rate of interest. However, such a term is not necessary for there to be a loan agreement. With this in mind, I do not see how the Plaintiff can establish this head of the claim. Whilst it may (subject to satisfactory evidence) eventually be appropriate to award interest at the normal judgment rate from the date of Write to date of judgment and thereafter at judgment rate until payment, it is not necessary, for the reasons set out below, for me to come to a definitive view at this stage.

Conclusion

23.Having come to the conclusions set out above, it seems to me there are at least 2 options open to me:-

(a)	dismiss the Plaintiff's claims in respect of the interim payments and (consequently) the rate of interest to be charged thereon;
(b)	order that there be a hearing de novo so that the necessary pre-trial preparations can be made.

24.Having considered the circumstances of this case, I find that I should adopt the second course in the exercise of my discretion. In so deciding, I took into account the following matters in particular:-

(a)	on the face of the materials before me, the Plaintiff appears to have a strong case that there is something owing by the Defendant (which may or may not be due and accrued);
(b)	the amount in question appears to be substantial;
(c)	the difficulties I mentioned earlier appear to have been brought about by the failure of the Plaintiffs legal advisers (as opposed to the Plaintiff itself) to take all the necessary/appropriate procedural steps, such as discovery and/or interrogatories, before fixing a date for the assessment of damages;
(d)	the Defendant did not appear to have any real interest in defending the Plaintiff's claim herein;
(c)	it does not appear that a hearing de novo would cause any prejudice to the Defendant which cannot be compensated for by costs. On the other hand, if the Plaintiffs claim were to be dismissed now, the prejudice to the Plaintiff cannot be compensated for by costs.

Costs Order Nisi

25.The parties agree that a costs order nisi can be made pursuant to R.S.C. Ord. 42 r. 5B(6).

26.In view of my earlier observations, I consider that it appropriate to make the following costs order nisi:-

	(a)	the costs of the assessment of damages be in the cause of the assessment;
	(b)	however, the costs of the hearing on 17 February, 1997 be to the Defendant to be taxed if not agreed in any event;
	(c)	pursuant to R.S.C.Ord. 62 r. 8(2), invite Messrs. Siao, Wen and Leung, within 14 days from today, to fix a date for showing cause (which the Plaintiff, but not the Defendant, should be invited to attend) as to why I should not make an order under Ord. 62 r. 8(1):-

	(1)	that they should pay the costs of the Defendant for the hearing on 17 February, 1997;
	(2)	to disallow the costs as between them and the Plaintiff in respect of the costs of the hearing on that day.

In default of such a date being fixed by Messrs. Siao, Wen & Leung within the said period, an order will be made in terms of sub-paragraph (c) above.

	(Andrew Chung)
	Master

Representation:

Mr. B. Mak i/s by Messrs. Siao, Wen & Leung for the Plaintiff

Defendant absent (Mr. Cheuk Tit-hop, Timothy present)