Clinton Engineering Ltd v. Tridant Engineering Co Ltd
Read the full judgment text of HCCT 98/1999 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 11 November 2005 before Hon Reyes J.
Contract Law — Agency — Undisclosed Principal — Sub-Contract — Construction Project — Payment Disputes — Repudiatory Breach — Preliminary Issues — Whether plaintiff was party to Sub-Contract as undisclosed principal through agent Mansion China — Whether plaintiff repudiated contract by non-payment. Clinton Engineering Limited, a wholly-owned subsidiary of Mansion (China) Limited, entered a Main Contract with the Employer for electrical, HVAC and plumbing works at Dong Jun Plaza. Mansion China purportedly sub-contracted parts to Tridant Engineering Co. Ltd. by a Letter of Intent (LOI), but Tridant denied Clinton's privity. Clinton issued a Letter of Authorisation (LOA) authorising Mansion China to contract on its behalf. Evidence regarding actual knowledge by Tridant of Clinton's involvement was examined and found insufficient to establish disclosed agency. The LOA was found authentic and conferred authority on Mansion China as agent of Clinton, making Clinton the undisclosed principal. Contract terms did not exclude Clinton's rights as undisclosed principal, including arbitration rights. On payment, Tridant claimed a substantial unpaid balance justifying suspension. Clinton countered with deductions including payment through Letters of Credit (LCs) to subcontractors. Court held Clinton entitled to deduct LC amounts recognized by subcontractors, but not others lacking evidence. The final shortfall was about 30% of claimed amount, held insufficient to amount to repudiatory breach. The court rejected Tridant's argument that Clinton evinced intention not to be bound and held that Clinton did not repudiate the Sub-Contract. Clinton prevailed on the preliminary issues; parties to proceed on remaining substantive claims and further directions to be agreed or ordered. Costs were reserved subject to taxation in respect of this trial.
Legal issues: Whether Clinton was a party to the Sub-Contract · Whether Clinton repudiated the Sub-Contract
Outcome: Clinton可作為分包合同的未披露主體，得以起訴Tridant；Clinton未構成分包合同根本違約
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HCCT 98/1999 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION & ARBITRATION PROCEEDINGS NO. 98 OF 1999 ____________ BETWEEN
____________ Before: Hon Reyes J in Court Dates of Hearing: 31 October and 1, 2 and 7 November 2005 Date of Judgment: 11 November 2005 _______________ J U D G M E N T _______________ I. INTRODUCTION 1.This is a trial of preliminary issues. There are 2 main questions. 2.The first is whether Clinton can sue Tridant for breach of a Sub-Contract. Tridant does not deny that there was a Sub-Contract. Instead Tridant contends that the Sub-Contract was between itself and Mansion China and Clinton was not privy to the agreement. 3.The second issue arises if I find in Clinton’s favour on the first. Tridant says that Clinton repudiated the Sub-Contract by failing to make substantial interim payments. Tridant contends that as at November 1995 outstanding payments were so sizeable, that Tridant was entitled to treat the Sub-Contract as ended. Tridant in fact stopped working on site. The question is whether Tridant was entitled to do so. II. BACKGROUND A. The Dong Jun Plaza Project 4.Clinton is a wholly-owned subsidiary of Mansion (China) Limited. Clinton and Mansion China belong to the Mansion Group of companies. 5.By letter dated 11 August 1993 Parsons Brinckerhoff Asia Ltd. (PBA), acting for Dong Jun Real Estate Interest Company Limited (the Employer), invited Tridant to tender for a sub-contract of the electrical, HVAC and plumbing and drainage works (the Works) at Dong Jun Plaza in Guangzhou. PBA noted that the successful tenderer would enter into an agreement with Mansion China as the main E & M contractor for the project. PBA’s letter described the tender documents (which were to be distributed on 12 August 1993), mentioning that they included Supplementary Conditions of Sub-Contract. 6.On letter dated 13 September 1993 Tridant proposed to execute the Works for $111,010,000.00, exclusive of PRC taxes and duties. The Tender accompanying the letter recited that Tridant had examined the terms and conditions of the Main Contract, the Supplementary Conditions of the Main Contract and the drawings and specifications for the Works. 7.In December 1993 Clinton executed an agreement (the Main Contract) with the Employer. The scope of the Main Contract included (but was not limited to) the Works. 8.Clinton claims that it expressly authorised Mansion China to enter into the Sub-Contract with Tridant by a Letter of Authorisation (LOA) dated 6 February 1994. Tridant disputes the authenticity of the LOA. Tridant suggests that the LOA was fabricated long after November 1995 to assist Clinton’s action against Tridant. 9.The LOA is in the following terms:
10.The LOA appears on its face to bear the signature of Mr. Jason Yip Chi Fun, a director of Mansion China. 11.On 8 February 1994 Mansion China sub-contracted the Works to Tridant. No formal sub-contract was ever drawn up. The Sub-Contract is instead contained in a Letter of Intent (LOI) dated 8 February 1994 from Mansion China to Tridant. 12.The LOI (on Mansion China letterhead) reads as follows:
13.Tridant formally accepted the terms of the LOI by signing a duplicate and returning it to Mansion China on 6 May 2004. 14.Tridant sub-sub-contracted the HVAC works to Polycrown Engineering Limited and the electrical and plumbing and drainage works to Ready System Engineering Limited. Tridant sub-contracted those portions of the Works on a “back-to-back” and “pay-when-paid” basis. Tridant agreed to pay Polycrown and Ready System at discounts of 6% and 12% respectively. 15.Tridant started the Works in January 1994 before the LOI was issued and signed. 16.In October 1995 Tridant alleged that Mansion China had failed to pay substantial interim amounts due under the Sub-Contract. By letter dated 23 October 1994 Tridant warned that, unless Mansion China paid those outstanding amounts, Tridant would suspend the Works. 17.By 1 November 1995 work on site was all but suspended. Tridant’s sub-contractors were refusing to do any significant jobs. Polycrown and Ready System were claiming that they had not been paid what was owing to them. Tridant in turn was blaming Mansion China for late payment. 18.On 22 November 1995 Tridant wrote that it accepted Mansion China’s repudiatory breach in withholding interim payments. Tridant said that it was thereafter treating the Sub-Contract as terminated. B. The trial of preliminary issues 19.Clinton’s action was to be tried before me in its entirety over 10 days from 31 October 2005. But at a pre-trial review on 3 October 2005 it was clear that the action was not ready for trial. For example, Clinton claims damages for delay and defective work by Tridant. To support that claim, as late as the pre-trial review, Clinton was still seeking leave to file extensive factual and expert evidence on quantum and delay. 20.After discussion with counsel, it was decided that trial dates should not be vacated. Instead the trial dates would be used to consider preliminary issues. I invited counsel to draft the precise questions which the parties believed the Court could consider by way of preliminary issues. 21.After refinement through exchanges among counsel and the Court, the preliminary issues before me now comprise the following questions:
22.If Issue 1 is against Clinton, that will end the action. Clinton would fail. Tridant has a counterclaim. But that is advanced on the premise that the Court holds that Clinton is entitled to sue under the Sub-Contract. 23.Regardless of how Issue 2 is decided, there would still have to a further trial. On any outcome on Issue 2, there would remain the parties’ several claims for monies due and owing or damages. Thus, for example, even if Clinton had repudiated and Tridant rightly terminated the Sub-Contract, Clinton may be entitled to set-off some, all or none of the damages which it claims against Tridant. The rationale behind Issue 2 is merely to narrow down the issues that would have to be investigated on any further trial. III. Discussion A. Issue (1): Was Clinton a party to the Sub-Contract? 24.For the purposes of exposition, it is convenient to re-formulate the sub-questions under Issue (1) slightly as follows:
I shall consider each of the latter sub-questions below. I shall then summarise my conclusions by reference to the sub-issues of Issue (1) as formulated by the parties. A.1 Was Clinton a disclosed principal? 25.Mr. Manzoni (appearing for Clinton) submits that Tridant knew all along that Clinton was Mansion China’s principal and that Mansion China was contracting with Tridant under the LOI as Clinton’s agent. 26.Mr. Manzoni relies on the following as establishing actual knowledge:
27.I am not persuaded by Mr. Manzoni on actual knowledge. 28.I do not believe that this is a case of disclosed agency. I do not think that Tridant was initially aware of Clinton’s involvement as Main Contractor. I think that, at least until long after November 1995, Tridant believed that Mansion China was the Main Contractor. I consider below the evidence relied on by Mr. Manzoni and explain why I do not find them convincing on actual knowledge. A.1.1 The Transmittal Letters 29.Prior to receiving the LOI, Tridant corresponded extensively with Mansion Holdings. Among its communications with Mansion Holdings, Tridant sent Transmittal Letters enclosing progress charts for the plumbing and drainage works on the project. There is a dispute between the parties as to whether, in the progress charts sent under cover of the Transmittal Letters, Tridant referred to Clinton as the Main Contractor. 30.Two similar (but not identical) sets of progress charts are in existence and have turned up in discovery. Both sets are in Chinese. The first set consistently identifies the Main Contractor in typed Chinese characters as Mansion Holdings. The first set relates only to plumbing and drainage. The second set identifies the Main Contractor in handwriting as Clinton (albeit misspelled as “CLINTION”or “CLINITON”) in 2 charts. The second set of charts relate to plumbing and drainage as well as other aspects of the Works. 31.The parties disagree over whether certain charts in the first or second sets were sent to Mansion Holdings by Tridant under cover of one or other of the several Transmittal Letters in the bundle. 32.Mr. Choi Kan Man, Tridant’s Project Manager, who became involved in the Works in early January 1994, has given evidence that Tridant only sent the first set of charts to Mansion Holdings. Mr. Choi denied ever having seen the “CLINTION” or “CLINITON” charts prior to this action. 33.None of the witnesses called by Clinton were involved with the Dong Jun Plaza project before October 1994. None of Clinton’s witnesses had personal knowledge of what may or may not have been sent to Mansion Holdings under cover of the Transmittal Letters in January 1994. 34.I accept Mr. Choi’s evidence as to what Tridant sent in January 1994. I see no reason to doubt what he has said about the Transmittal Letters and its enclosures. 35.I am supported in this view by the fact that one of the plumbing and drainage charts referring to Mansion Holdings as Main Contractor, bears the handwritten date “24/1/94” and the signature “Alex” of Mr. Choi’s colleague Mr. Lee Lai Wah. Mr. Lee signed the covering Transmittal Letters on Tridant’s behalf. Mr. Choi said that it was the custom in Tridant for a person to inscribe his initials and the date on a document once seen. The “Alex” signature thus indicates that Mr. Lee saw the specific chart on 24 January 1994 at about the time the Transmittal Letters were sent. 36.There is a near identical chart in the second set with the name “CLINTION”. But that chart only has the handwritten (somewhat illegible) date “11/10/94” and does not bear Mr. Lee’s “Alex” signature. No witness could definitely identify who wrote the date or what exactly the handwritten date was. But, whatever it may have been, the date certainly was after January 1994. This suggests that the second set’s chart may be of later provenance and could have been edited by some person other than one working for Tridant. 37.Tridant sent 4 copies of any particular progress chart to Mansion Holdings. It is possible that some person receiving a copy of a chart noticed the mistake in Tridant’s identification of the Main Contractor, deleted Mansion Holding’s name, and inserted the name “CLINTION” or “CLINITON”. That person then made use of the corrected progress chart and the same could have been circulated among relevant parties (which may or may not have included Tridant) at some point after January 1994. 38.I accordingly do not think that the “CLINTION” or “CLINITON” charts constitute any reliable evidence that Tridant knew that Clinton and not Mansion China was the Main Contractor for the Works. A.1.2 Tridant’s Tender 39.In its Tender Tridant stated that it had examined the Main Contract. But that was in September 1993, months before the Main Contract was signed in December 1994. 40.I do not think that anything can be inferred about Tridant’s knowledge of Main Contractor, from Tridant’s statement in the Tender. Indeed, given PBA’s letter of August 1993 inviting Tridant to tender, it is difficult to infer that Tridant knew that Clinton was the Main Contractor. In its letter, PBA makes no mention of Clinton, but says that the Main Contract was to be between the Employer and Mansion China. A.1.3 LOI clause 5 41.Clause 5 states that Tridant is “deemed to have full knowledge of the provisions of the [main] contract”. 42.I do not think that this “deeming” provision supports Mr. Manzoni’s case that Tridant had actual knowledge of Clinton’s involvement. “Deemed” knowledge is not the same as “actual” knowledge. 43.Further, there is an ambiguity in Clause 5. The words “in so far as they relate to the sub-contract” may modify the deeming provision. If so, Tridant would not be deemed to know everything in the Main Contract. Tridant would only be deemed to know the Main Contract “in so far as” relevant to fulfilling Tridant’s obligations under the LOI. This would mean that Tridant might be expected to know of (say) the drawings and specifications for the Works. But the deeming provision would not necessarily extend to knowledge of the Main Contractor’s identity, as this should not affect Tridant’s performance of the Works pursuant to an LOI apparently concluded with Mansion China. A.2 Was Clinton an undisclosed principal? 44.Mr. Manzoni argues in the alternative that, by reason of the LOA, Clinton was an undisclosed principal. As such Clinton is entitled under well-established principle to claim the benefit of the Sub-Contract with Tridant. This would be despite the fact that the LOI is ostensibly between Tridant and Mansion China. 45.Here I agree with Mr. Manzoni. 46.Mr. Scott SC (appearing for Tridant) argues that Clinton cannot take the benefit of the LOI. Mr. Scott relies on the following arguments:
47.I shall consider the first two arguments advanced by Mr. Scott in Sections A.2.1 and A.2.2 below. I assess the 3rd argument in Section A.3. A.2.1 The LOA’s authenticity 48.Mr. Scott queries the authenticity of the LOA on the following bases:
49.On Mr. Scott’s first basis, I agree that, in the normal course of events, the best evidence of the LOA’s genuineness would have been to call Mr. Yip as a witness. 50.But in light of Mr. Yip’s convictions it could hardly be surprising that Clinton did not call him. I also doubt that Mr. Yip would have been cooperative as Mr. Yip has himself been sued by Mansion Sports Limited of the Mansion Group. 51.Nonetheless, there is a strong pointer to the LOA being authentic on balance. 52.Clinton called evidence from Mr. George Tung, a claims consultant. 53.Mr. Tung recalled that Mansion Holdings had consulted his company in September 1997 in relation to the Dong Jun Plaza project. A copy of the LOA was among the papers which Mansion Holdings provided to Mr. Tung at the time. Although the relevant papers have long since been destroyed, Mr. Tung remembers the LOA because he expressly referred to the LOA and its contents in the first page of his advice of 23 September 1997 to Mansion Holdings. Mr. Tung produced a copy of that first page to the Court. 54.I accept Mr. Tung’s evidence. That suggests that the LOA was in existence by at least September 1997, long before Clinton first issued the writ here in August 1999. 55.It is unlikely that Clinton would fabricate the LOA for the purposes of facilitating its case against Tridant 2 years before actually suing. It is also improbable that Clinton would fabricate the LOA for the simple purpose of obtaining advice from a claims consultant. 56.On the balance of probability, the likelihood is that, if the LOA was around in September 1997, such was the case because it had come into being in February 1994 as it states on its face. 57.On the first day of trial Clinton applied to adduce expert evidence on the authenticity of Mr. Yip’s signature on the LOA. No mention had been made of such evidence at the pre-trial review or before. I refused the application because I thought that it came too late in the day and, without a lengthy adjournment, Tridant would have no reasonable opportunity to deal with the material. 58.On Mr. Scott’s second basis, I do not see how the mere fact that Mr. Yip lied on certain matters leads to an inference that he lied in others. This is simply a prejudice point. I do not find the argument compelling. 59.On Mr. Scott’s 3rd basis, I am unable to infer anything from the fact that Clinton only disclosed the original LOA in 2003. 60.Mr. Zhou has affirmed that Clinton’s files were in a state of confusion in the late 1990s. Mr. Yip ceased to be chairman of Clinton and the Mansion Group in 1997. New management teams came and went from 1998 onwards. The result was that Clinton’s documents moved about several times among various office and storage spaces over the years. In those circumstances, late disclosure of the original (while unfortunate) is explicable. A.2.2 The LOA’s terms 61.I think that, on a plain reading, the LOA’s terms conferred authority on Mansion China to enter into the LOI with Tridant. 62.It follows from Sections A.2.1 and A.2.2 that Clinton was the undisclosed principal of Mansion China. A.3 Is Clinton precluded from claiming the benefit of the LOI? 63.Bowstead and Reynolds on Agency (17th ed.), Art.78 (p. 342) states the operative rules as follows:
64.Mr. Scott argues that Clinton cannot take the benefit of the LOI because the latter’s terms exclude Clinton’s intervention as undisclosed principal. In particular, Mr. Scott submits as follows:
65.I am not persuaded by Mr. Scott’s submissions on this issue for the reasons summarised below. 66.As to Mr. Scott’s first submission, the LOI refers to “We (hereinafter called ‘Mansion’)” confirming an intention to appoint Tridant. Clause 5 then recites that “Mansion has entered into a contract with [the Employer]”. 67.The expression “We” is wide. It can refer to Mansion China specifically, but it can also encompass Mansion China and its subsidiaries, especially wholly-owned subsidiaries such as Clinton. I do not see that Clause 5 is inconsistent with Clinton having entered into the Main Contract and claiming the benefit of the LOI as a subsidiary of Mansion China. 68.As to Mr. Scott’s second submission, Mr. Scott says that Conditions of Sub-Contract are incorporated through clause 7 of the LOI. That stipulates that (among other correspondence) PBA’s tender invitation letter of 11 August 1993 and Tridant’s tender letter of 13 September 1993 “shall form part” of the LOI contract. Mr. Scott contends that, as a result of the reference to tender documents in the 2 letters, clause 7 incorporates the Conditions of Sub-Contract which form part of the tender documents. 69.If he is right, Mr. Scott says that the Conditions of Sub-Contract forming part of the tender documents would have been incorporated into the LOI. 70.Mr. Scott points, by way of example, to clause 22 of those Conditions. That provides for arbitration as follows (in translation from the Chinese):
71.Mr. Scott argues that clause 22 militates against an undisclosed agency. He submits that, on a true construction of the clause (especially the references to “both parties”), only Mansion China and Tridant could refer disputes to arbitration. Mansion China and Tridant (Mr. Scott suggests) must thus be taken to have regarded themselves as the only parties to the LOI. 72.Mr. Scott also refers to clauses 8(b) (Sub-Contractor to give written notice of delay to Main Contractor); 8(c) (Main Contractor to ask Architect to ascertain amounts of certain direct loss or expense); 12 (Main Contractor to assist Sub-Contractor to obtain certain benefits of the Main Contract); and 21 (Sub-Contractor’s employment to end if Main Contractor’s employment ends for any reason). Mr. Scott says that these provisions also show an intention to exclude the intervention of any undisclosed principal. 73.I do not think that clause 7 incorporates the Conditions of Sub-Contract. 74.PBA’s 11 August letter mentions the tender documents, but only as an invitation to treat on those terms. I do not think that the mere reference in the letter to the Conditions of Sub-Contract has the effect of incorporating those Conditions into any agreement later concluded with Tridant. 75.Tridant’s letter of 13 September 1993 encloses a “Tender” filled up by Tridant which refers (in English translation) to Tridant having reviewed the Main Contract, the Supplementary Conditions of the Main Contract and the drawings and specifications for the Works. 76.The Tender submission states (in English translation):
77.A Table of Contents then identifies the appendices to Tridant’s Tender submission. The documents (together with appendices) comprising Tridant’s Tender submission did not include the Conditions of Sub-Contract. 78.Tridant thus offered by its Tender to contract on terms which did not include the Conditions of Sub-Contract. Under the LOI those remained to be agreed. 79.That detailed conditions of sub-contracting remained to be agreed, is acknowledged by clause 6 of the LOI. That clause stipulates that formal terms of sub-contracting between Mansion China and Tridant are yet to be settled. It would be odd if all the minutiae of the tender documents, including the Conditions of Sub-Contract, were to be treated as binding, despite further negotiation under LOI clause 6 of the parties “respective rights, obligations and duties in detail”. 80.It is more likely that the parties intended that the LOI, especially clauses 1 and 5, would serve as a bare framework of their obligations pending negotiation on detailed terms. Clause 5, for example, stipulates that the terms of the Main Contract “in so far as they relate to the sub-contract” created by the LOI will apply. 81.Even if I were wrong on the non-incorporation of the Conditions of Sub-Contract, I do not think that the clauses cited by Mr. Scott preclude operation of the undisclosed agency doctrine. 82.Take, for instance, the arbitration clause. 83.Mustill and Boyd on Commercial Arbitration (2nd ed.), pp. 136-7 states:
84.Applying the principle in Mustill and Boyd, one finds nothing in clause 22 (including the references to “both parties”) which excludes the possibility of Clinton relying on clause 22 as undisclosed principal. Clinton would all along have been an actual party to the arbitration agreement. 85.Similarly, the references to “Main Contractor” in the other clauses highlighted by Mr. Scott can all be construed as references to Clinton as Main Contractor. 86.Mr. Scott has pointed to possible stray references to Mansion China in the Main Contract, but I do not think that these are enough to displace the unambiguous statement on page 1 of the Main Contract that the Employer (Party A) was there contracting with Clinton (Party B). There is no evidence to support Mr. Scott’s contention that page 1 of the Main Contract only reflects a “parallel universe” and in reality (despite page 1) the Main Contractor was Mansion China. 87.As to Mr. Scott’s 3rd submission, Tridant wrote to Mansion Holdings as follows on 5 November 1993:
88.Mr. Scott suggests that the letter shows an intention on Tridant’s part to contract with Mansion China alone, not Clinton. 89.But I am unable to read the letter in that light. 90.Tridant adduced no evidence on the circumstances surrounding the letter. The one witness called by Tridant, Mr. Choi, said that he was not involved with the letter. 91.The letter could well have been using the name “Mansion China” in its loose sense. It is consistent with Tridant being prepared to enter into a sub-contract with Mansion China, including a wholly owned subsidiary of Mansion China, provided that “Mansion Hong Kong” provided a bank guarantee. 92.Indeed, if anything, Tridant’s 5 November 1993 letter lends force to Mr. Manzoni’s submission that, provided it had a bank guarantee from “Mansion Hong Kong”, Tridant was prepared to enter into a sub-contract with any entity in the Mansion Group generally. In fact, at the end of the day, no guarantee was ever provided. Even without a guarantee, Tridant was apparently as content to contract with Mansion China as with Mansion Holdings. A.4 Summary of Answers to Issue (1) 93.In light of the foregoing, I would answer Issue (1) and its sub-questions as follows:
94.I note that on first day of trial Clinton applied to amend its claim so as to join Mansion China as plaintiff. The application coming late in the day, well past the normal 6-year limitation period, I refused the application. There seemed to be no good explanation for the delay in applying to join Mansion China as a party. I accordingly did not feel that there was a basis for exercising any discretion which I might have to allow a late joinder. B. Issue (2): Did Clinton Repudiate the Sub-Contract? 95.In light of my conclusion on Issue (1), in this section I shall treat the Sub-Contract as having been between Clinton and Tridant and Mansion China’s acts as being attributable to Clinton. 96.Tridant’s case on Issue (2) is readily summarised: As at November 1995, ignoring numerous oral and written requests, Clinton had failed to pay $41,950,716.00. This shortfall, amounting to some 43% of the net Sub-Contract sum, was large. Given that the Works were nearly complete and that (despite objection) Clinton was still claiming substantial deductions from amounts sought by Tridant, it was evident that Clinton was not going pay anything more. Clinton had on the contrary shown an intention not to be bound by the Sub-Contract. Tridant was thus entitled to accept Clinton’s non-payment as a breach going to the root of the Sub-Contract and entitling Tridant to stop work on site. In support of its case, Tridant relies on LOI clause 4 which provides for monthly interim payments. 97.To evaluate Tridant’s case, it is necessary to obtain a general idea of:-
98.It is common ground that before stopping work in November 1995 Tridant was claiming entitlement to $109,530,781.50. Of that amount, the parties agree that as at November 1995 Clinton had paid $42,240,000.00 directly to Tridant. 99.Further, for the purpose of determining these preliminary issues, Mr. Scott accepts that $25,140,065.50 may be deducted from the total amount claimed by Tridant. 100.Mansion paid approximately $25,140,065.50 by way of LCs in favour of Polycrown. On the basis of those LCs, Polycrown supplied HVAC equipment to Tridant for the Works. 101.Mr. Scott here accepts a deduction of the sum paid to Polycrown because, in its 16th Interim Payment Application (IPA) of 16 September 1995 (the last IPA submitted), Tridant deducted that amount from the total claimed. Note, however, that the IPA stated that the deduction was subject to verification on production of receipts. 102.There is a small discrepancy between the $25,140,065.50 accepted by Tridant and the $26,495,258.70 which Clinton says on the basis of documents in the trial bundle was the sum actually paid to Polycrown through LCs. I do not believe that the difference of $1,355,193.20 materially affects the analysis below. For the purpose of determining Tridant’s entitlement to treat the Sub-Contract as repudiated, I will proceed on the basis that the $25,140,065.50 provisionally accepted by Mr. Scott is the correct deduction for the Polycrown LCs. 103.Mr. Scott also accepts a contra-charge of $200,000.00. Mr. Choi gave that figure as his estimate of the amount paid by Mansion China on Tridant’s behalf for software used during the Works. 104.The $41,950,716 mentioned above is derived by subtracting the agreed sums just set out from the $109,530,781.50 claimed by Tridant. 105.Clinton says that the $41,950,716.00 should be further reduced by about $21,555,686.85. This deduction has 2 components. The first is $14,694,709.75 which Clinton says was the LC amount which it caused to be opened in favour of Ready System for equipment used by Tridant in the Works. The second component is $6,860,977.10 which Clinton says was the LC amount which it caused to be opened in favour of Man Kee Works Company, an entity to which Ready System sub-sub-sub-contracted some of the Works. Tridant denies Clinton’s right to deduct either component. 106.In November 1995 Clinton was claiming to deduct $1.4 million of contra-charges. Nonetheless, for the purposes of these preliminary issues, beyond the $200,000.00 accepted by Mr. Scott, I cannot determine the validity of Clinton’s contra-charges. Such determination would require more detailed consideration of quantum evidence. I do not believe that it would be fair on Tridant to make findings at this stage on the items comprising Clinton’s claimed contra-charges. The evidence on such question is not all before the Court. I shall therefore assume for the time being that Clinton was at most entitled to a contra-charge of $200,000.00. 107.In November 1995 Clinton was also saying that amounts claimed by Tridant for variation work were insufficiently particularised. Tridant disputes this. Again it was not feasible to consider individual variations in the course of the trial of preliminary issues. For the purposes of answering Issue (2), I shall proceed by further assuming that Tridant had given adequate details of variation work. 108.In light of the above, Issue (2) boils down to the following sub-questions:
109.I shall initially consider the 3 sub-questions just identified. I shall then summarise my conclusions by reference to the specific sub-issues formulated under Issue (2). B.1 Could Clinton deduct for LCs to Ready System and Man Kee? B.1.1 Ready System 110.Mr. Manzoni submits that Clinton can deduct Ready System’s LC amounts because Tridant agreed or requested Clinton to open the relevant LCs. Tridant (Mr. Manzoni says) all along knew about and accepted the LC arrangement. It is true that if, Clinton having deducted the relevant LC amounts, Ready System then sought payment from Tridant for the equipment supplied under the LCs, Tridant would suffer a double liability. But (Mr. Manzoni stresses), after Tridant’s request to Clinton, Ready System confirmed that it would not charge Tridant for the equipment paid by way of Clinton’s LCs. Tridant thus had some “security” against double liability. 111.Mr. Manzoni primarily relies on 4 pieces of evidence in support of his contentions. 112.Mr. Manzoni’s first piece of evidence is Tridant’s apparent request for the opening of LCs in favour of Ready System. 113.On 19 November 1994 Tridant wrote to Mansion China as follows (in English translation):
114.Tridant does not accept Mr. Manzoni’s reading of the 19 November letter. 115.When the 19 November letter was put to Mr. Choi, he agreed that item (1) there related to an LC in Tridant’s favour. But he said that item (2) concerned a company known as Ready Metal, not Ready System. Mr. Choi only accepted that item (9) involved Ready System. 116.Mr. Choi further said that the request in respect of item (9) was only pressing Mansion China to cause an LC to be opened in favour of Mansion Electronics Engineering Co. Ltd. 117.This apparently was because Mansion Electronics was to supply Ready System with low voltage equipment and materials for use in the Works. Mansion Electronics could not supply Ready System (and Ready System could not in turn supply Tridant) with the equipment until an LC was opened. 118.Mr. Choi accepted that by the 19 November letter Tridant was asking for an LC payment in respect of item (1). But according to Mr. Choi, on item (9) in contrast, Tridant was only pushing the Mansion Group to open an LC so that materials could be supplied to Ready System (which could then supply Tridant) without delay. 119.Mr. Manzoni secondly relies on Ready System apparently stating that it would not charge Tridant in relation to equipment paid for through the Mansion Group’s LCs. 120.On 3 April 1995 Ready System wrote to Tridant (in English translation):
121.In the letter Ready System itemised 6 LC transactions amounting to $11,190,553.75 (that is, $559,612.80 + $1,197,677.00 + $4,093,610.00 + $3,131,813.95 + $1,217,840.00 + $990,000.00). 122.Tridant disagrees with Mr. Manzoni’s reading of the April 1995 letter. 123.Mr. Choi on cross-examination denied any agreement by Tridant to the deduction of Ready System LC amounts. Mr. Choi said that, despite pressure from the Mansion Group, Tridant objected to any deduction of those amounts. Tridant feared that its position would be insecure otherwise. It could face double liability, deduction by the Mansion Group on the one hand and demand for payment from Ready System on the other. Tridant also feared a lack of control over the amounts deducted. What, for instance, if the LC amounts allegedly paid for materials were inflated? 124.Note that one of the LCs mentioned in the 3 April letter is for $4,093,610.00. That concerns the low voltage system to be supplied by Mansion Electronics. On 13 December 1994 Ready System only appears to have requested an LC for $3,104,625.00 in respect of the low voltage system. Mr. Manzoni was unable to explain the resulting difference of $988,985.00. 125.Note also that the LCs mentioned in the 3 April letter do not cover the entire deduction of $14,694,709.75 now claimed by Clinton in respect of Ready System. There is no evidence that Ready System agreed to credit Tridant over and above what is stated in the 3 April letter. 126.Mr. Manzoni thirdly relies on the fact that, in some (but not all) LC transactions identified in the 3 April 1995 letter, Ready System wrote to Mansion Fire acknowledging that the latter had ordered the goods concerned “on behalf of” Ready System. 127.Mr. Manzoni fourthly points to the arrangement whereby Clinton could deduct amounts of LCs opened in favour of Polycrown’s suppliers. Mr. Choi said that Tridant only agreed to the arrangement with reluctance, after pressure from Mansion China. Whether or not that was so, the existence of the Polycrown system indicates (Mr. Manzoni argues) that a similar understanding was in place with Ready System. 128.In my judgment, Clinton should be able to deduct the LC amounts acknowledged by Ready System in its letter of 3 April 1995. 129.I agree with Mr. Manzoni that the 4 matters just enumerated suggest on the balance of probability that there was an understanding among Clinton, Tridant and Ready System that Clinton could deduct the LC amounts identified in the 3 April 1995 letter and Ready System would not charge Tridant for those amounts. There would be no danger of double liability. 130.I do not accept Mr. Choi’s evidence to the effect that no arrangement at all in relation to LCs was agreed. The 19 November 1994 letter contradicts Mr. Choi’s assertion, certainly as far as the low voltage system to be supplied by Ready System is concerned. Nor do I think that Ready System would write to Tridant as it did in April 1995 unless there was a general understanding. 131.In his witness statement, Mr. Choi claims that Clinton’s LC arrangements were merely intended to make the turnover of the Mansion Group “more impressive”. For this speculation, Mr. Choi relies on an alleged conversation with Mr. Wan of Ready System. 132.There is no concrete evidence to support Mr. Choi’s assertion. While an order for the supply of goods might (if bogus) serve as window-dressing for a company’s books, I do not understand how incurring a liability to pay on an irrevocable LC would render turnover “more impressive”. 133.Mr. Scott argues that I should ignore the 3 April letter since that only involves Tridant and Ready System. It is (in Mr. Scott’s words) “res inter alios acta”. I do not agree. 134.Assume that there was no understanding of the nature suggested by Mr. Manzoni. Even then, in light of the 3 April letter, I do not think that Tridant’s case would be helped. 135.If Clinton paid Tridant for materials which Ready System said that Ready System would not be charging Tridant on account of LCs opened by the Mansion Group, Tridant would be unjustly enriched at the expense of the Mansion Group (including Clinton). Tridant would come under a personal liability to account to Clinton for the unjust enrichment. That would be equivalent to the amount specified in the 3 April letter. 136.Why then should Clinton have to pay the Ready System LC amount covered by the 3 April letter in the first place? Clinton must in principle be entitled to deduct the amount from the outset. 137.Mr. Manzoni would go further than I have thus far gone. He submits that Clinton should be able to deduct amounts not covered by the 3 April letter. He says that I can infer an arrangement to cover LC amounts over and above those in the 3 April 1995 letter. I do not think that would be right. 138.I do not believe that I can infer that the arrangement among Clinton, Tridant and Ready System covered all LCs opened by the Mansion Group, not just those mentioned in the 3 April letter. If that were the case, why did Ready System not say so in any correspondence, either on 3 April 1995 or any other time? Ready System’s failure to mention other LCs indicates that the arrangement was limited. 139.For the other LC amounts claimed by Clinton as deductions, in the absence of any letter from Ready System similar to that of 3 April, Tridant would be exposed to double liability. In relation to those LC amounts, I do not think on the evidence before me that Clinton would have a right to deduct. 140.There is a small question of the $988,985.00 difference identified in connection with the low voltage system. Although it is unclear why Ready System’s December 1994 LC quotation was increased by nearly $1 million, it appears that Ready System was prepared to give Tridant credit for the amount of increase. The logic of the unjust enrichment argument sketched above suggests that Clinton should be able to deduct the full amount of the LC opened and not just the sum originally quoted by Ready System. B.1.2 Man Kee 141.The evidence of an arrangement in relation to LCs opened in Man Kee’s favour is scant. 142.The 19 November 1992 letter does not concern LCs opened by the Mansion Group in Man Kee’s favour. 143.The only concrete evidence is a letter from Man Kee to Ready System dated 2 November 1995 on the Dong Jun Plaza project. That reads (in English translation):
144.Mr. Manzoni submits that once the possibility of deduction has been established as far as Polycrown and Ready System are concerned, the Court can infer a similar arrangement in relation to Man Kee. I disagree. 145.As far as the 2 November letter is concerned, I think that Mr. Scott’s objection of “res inter alios” is apposite. There is no evidence that Ready System was prepared to give credit to Tridant for the $4,415,000.00 allowed to Ready System by Man Kee. 146.On the available material, I am unable to find that Clinton could deduct Man Kee LC amounts pursuant to some arrangement among Clinton, Tridant, Ready System and Man Kee. B.2 What would have been the maximum amount unpaid to Tridant? 147.From the $41,950,716.00 mentioned above, the $11,190,553.75 specified in Ready System’s 3 April letter should be deducted. That result is a shortfall of $30,760,162.25. 148.If I am wrong in allowing a deduction of $988,985.00 in relation to the low voltage system, the shortfall would increase to $31,745,147.25. 149.Either shortfall would be just under 30% of the total amount being claimed by Tridant as at November 1995. B.3 Could Clinton’s non-payment have been repudiatory? 150.Although a 30% shortfall is significant, I am unable to hold that non-payment of that amount goes to the root of the Sub-Contract. I do not think that Clinton can treated as having repudiated the Sub-Contract. 151.I make 2 observations. 152.First, in arriving at a deficit of 30%, I have made every assumption in Tridant’s favour. Even then, the final figure is about half the $63,388,000.00 which Tridant alleged was outstanding in its letter to Mansion China dated 23 October 1995. Tridant indicates in its letter that non-payment of a sum in the order of $63,388,000.00 might lead to suspension of work on the project “in the next couple of days”. But the actual shortfall appears to have been substantially less. 153.Second, I find it hard to conclude (as Mr. Scott asks me) that, merely by claiming the deductions which it did, Clinton evinced an intention no longer to be bound by the Sub-Contract. 154.From the discussion of Issue (2), it is implicit that Clinton wrongly made certain deductions. I do not think that it necessarily follows from Clinton’s misapprehension of its entitlement that Clinton was manifesting an intention not to be bound by the Sub-Contract. If anything, on an objective basis, Clinton would appear to be affirming the Contract (albeit on a misguided view of its rights). 155.Contrary to Mr. Scott’s submission, I do not see how the fact that the Works were near completion affects this analysis. 156.Mr. Scott has suggested that Clinton may have been acting in bad faith in claiming deductions. This is said to be because the Mansion Group was illiquid and just could not pay Tridant. But the evidence before me does not establish the contention. B. Summary of Answers to Issue (2) 157.I would answer Issue (2) and its sub-questions as follows:
IV. Conclusion 158.Clinton can as undisclosed principal claim the benefit of the Sub-Contract contained in the LOI. 159.Clinton did not repudiate the Sub-Contract by failing to pay Tridant. 160.Clinton has essentially prevailed on this trial of preliminary issues. There will be an order nisi that Clinton is to have its costs which are attributable to this trial, such costs to be taxed if not agreed in any event. All other costs are to be reserved. 161.There will be the following directions nisi:
Mr. Charlie Manzoni and Mr Timothy Haynes, instructed by Messrs. Siao, Wen and Leung, for the Plaintiff Mr. John Scott, SC leading Mr David Tsang, instructed by Messrs. Wong & Fok, for the Defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Further hearings and rulings under HCCT 98/1999