Wing Lee Engineering & Technical Services Ltd v. Alliance Building Services Engineering Ltd

DCCJ2056/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2056 OF 2004

BETWEEN

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Coram: Deputy District Judge W. K. Kwok in Court

Date of Hearing: 21^st, 22^nd June, 11^th & 12^th August 2005

Date of Handing Down of Judgment: 21^st March 2006

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JUDGMENT

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1.Between 2000 and 2001, a fire services wet system was to be installed in the student hostel of the Hong Kong Polytechnic University (“the Work”).  The principal contractor of the Work was Gammon Construction (Hong Kong) Limited (“Gammon”).  As it is common in the building and construction industry in Hong Kong, the Work was subcontracted from one contractor to another.  Gammon subcontracted the Work to Thorn Security (Hong Kong) Limited, which in turn subcontracted the Work to Sinotech Engineering Limited (“Sinotech”), which further subcontracted the Work to the Plaintiff.

2.The Plaintiff was not the ultimate sub-contractor.  It subcontracted the Work to the Defendant.  At all material times, Mr. Wong Kong Fan (“PW1”) was the Plaintiff’s manager.  Mr. Choi Kin Man Kent (“DW1”) was the director and a shareholder of the Defendant.  PW1 and DW1 are the two witnesses in this trial.

3.It is common ground in the evidence that the Work was actually carried out in the site by Mr. Chu Yau Chai (“Chu”) and the workers engaged by Chu.  The Defendant’s case, as supported by DW1’s evidence, is that it had further subcontracted the Work to Chu. 

4.On the other hand, PW1 states in evidence that he does not know the precise legal relationship between the Defendant and Chu, although when he was dealing with Chu at the material times, Chu was acting as a representative of the Defendant.

5.It is nevertheless clear that the Plaintiff is not disputing that Chu was a subcontractor of the Defendant.  Besides, PW1’s evidence is insufficient to show that Chu was at the material times a partner of DW1, or he was an employee of the Defendant.  Under these circumstances, I find on a balance of probabilities that Chu was at the material times the Defendant’s subcontractor in the execution of the Work.

6.It is common ground in the evidence that in the afternoon of 18^th July 2001, Chu and his workers staged a sit-in protest inside the work site on the ground that they had not received payment from the Defendant.  They refused to carry out further work.  Their protest brought the construction work in the site to come to a complete halt.

7.Sinotech convened a meeting that very same night inside a Chinese restaurant in Kowloon City Plaza to deal with the problem caused by the sit-in protest.  The persons attending this meeting included inter alia PW1, DW1, Chu and Mr. Tang of Sinotech (“Tang”). 

8.Certain agreements had been reached during this dinner meeting of 18^th July 2001 to put an end to the sit-in protest.  The protest did in fact end the following day on 19^th July 2001 when the Defendant together with Chu and his workers vacated from the work site. 

9.There are however substantial conflicts in the evidence as to what agreements had been reached during the meeting, and between whom those agreements had been reached.

The Plaintiff's case

10.It is the Plaintiff’s case that pursuant to the agreement it had made with the Defendant during the dinner meeting of 18^th July 2001, and with the Defendant’s consent given orally on 19^th July 2001, it had paid directly to Chu the sum of $350,000 to settle the outstanding wages owed by the Defendant to Chu.  The Plaintiff says that the payment was made by means of two cheques given by PW1 to Chu on 19^th July 2001.  The first cheque was dated the same date (i.e. 19^th July 2001) for the sum of $100,000; while the second cheque was dated one week later (i.e. 26^th July 2001) for the sum of $250,000.  Both cheques had been presented for payment and cleared on their respective due dates.  The Plaintiff contends that it is entitled to recover from the Defendant the payment it had made to Chu under the agreement the parties had made during the dinner meeting on 18^th July 2001. 

11.Further or alternatively, the Plaintiff contends that it is entitled to recover this sum of $350,000 pursuant to section 43F of the Employment Ordinance, Chapter 57 (“the Ordinance”). 

12.In making its claim, the Plaintiff is willing to give credit to the Defendant for the sum of $135,954 being the total amount of the two cheques issued by the Plaintiff in favour of the Defendant.  The Plaintiff had countermanded payment of these two cheques on 14^th July 2001.  The Plaintiff is therefore claiming against the Defendant for $214,046.

The Defendant's case

13.The Defendant denies that it had entered into the agreement as alleged by the Plaintiff.  It denies that the Plaintiff had paid $350,000 to Chu, or that it had ever requested the Plaintiff to make that payment on its behalf.  The Defendant further contends that there was only an agreement made between Sinotech and Chu that Sinotech would pay to Chu directly the outstanding wages in the sum of $489,908 without passing the money through either the Plaintiff or the Defendant.  As between the Plaintiff and the Defendant, it contends that while the Defendant would not demand the Plaintiff to pay to it the outstanding sum of $579,591.31 due and payable by the Plaintiff under 5 invoices issued by the Defendant for the Work, the Plaintiff would still have to pay to it the two countermanded cheques for the total sum of $135,954. 

14.It is the Defendant’s case that before the sit-in protest, it had issued 5 invoices of diver dates to the Plaintiff.  Two of these invoices were for building a sample flat in the work site, and the remaining three invoices were for progress payments for the work completed.

15.The Defendant further contends in the alternative that if the Plaintiff is entitled to rely upon section 43F of the Ordinance to recover from it the said sum of $350,000, the Plaintiff shall be bound by the same statutory provision to deduct by way of set off its claim from the said sum of $579,591.31 recoverable by the Defendant under the said 5 invoices, and pay to the Defendant the balance of $229,591.31.

16.Hence, the Defendant not only denies the Plaintiff’s claim but also counterclaims against the Plaintiff for “the said sum of $135,954 or alternative the said sum of $229,591.31”.

The issues

17.Having considered the evidence from PW1 and DW1, and the submissions from Mr. Damian Wong (“Mr. Wong”), Counsel for the Plaintiff, and Mr. Raymond Fong (“Mr. Fong”), Counsel for the Defendant, I find that the issues to be resolved in this trial are: -

(1)   Had the Plaintiff paid $350,000 to Chu?

(2)   If so, is the Plaintiff entitled to recover this sum of $350,000 from the Defendant?

(a)   What was the agreement, if any, made between the Plaintiff and the Defendant during the dinner meeting of 18^th July 2001?

(b)  Did the payment of this sum of $350,000 satisfy the requirement of section 43C of the Ordinance and hence recoverable by the Plaintiff under section 43F?

(3)   Is the Defendant entitled to claim against the Plaintiff for the sum of $135,954?

(4)   Is the Defendant entitled to claim against the Plaintiff for any other sum of money under its subcontract with the Plaintiff?

(a)   What was the contract price for execution of the Work?

(b)  What was the agreement in respect of the sample flat?

(c)   What was the actual value of the work done by the Defendant?

Plaintiff's payment of $350,000 to Chu

18.In the Re-Amended Defence, the Defendant denies that the Plaintiff had paid $350,000 to Chu and puts the Plaintiff to strict proof.  In his witness statement, DW1 states that he was astonished to learn from the Statement of Claim filed herein on 23^rd April 2004 that the two cheques in the sum of $350,000 had been given to Chu, not by Sinotech, but by the Plaintiff.

19.In my view, the evidence adduced by the Plaintiff to prove payment of this sum of $350,000 to Chu is just overwhelming.  First, photocopies of the two cheques, both drawn in favour of Chu upon the Plaintiff’s account in the Bank of East Asia Limited for the respective sums of $100,000 and $250,000, have been produced by PW1 in evidence.  Second, PW1 has also produced a receipt dated 19^th July 2001 signed by Chu.  On this receipt, Chu had duly acknowledged that he had received these two cheques for a total of $350,000 from the Plaintiff.  Third, the statement issued by the Bank of East Asia Limited in respect of the Plaintiff’s account for the month of July 2001, which is also adduced in evidence, clearly shows that these two cheques were presented for payment on their respective due dates, i.e. the 19^th July 2001 and 26^th July 2001, and that they were duly cleared. 

20.In addition, despite what has been stated by the Defendant in the pleadings and by DW1 in his written witness statement, DW1 has stated under cross-examination that Chu had informed him that he (Chu) had received $350,000 from the Plaintiff, and that he (Chu) had used the money so received to settle the wages owed to his workers so as to disband them.  There is an issue as to when DW1 was made aware of the Plaintiff’s payment to Chu, which will be dealt with later, but the clear and unambiguous evidence from DW1 himself is that Chu, i.e. the Defendant’s own subcontractor, had admitted to DW1 that he (Chu) had received payment from the Plaintiff in the sum of $350,000.  In my view, there was simply no reason for Chu to say so to DW1 if he had not in fact received the money from the Plaintiff.  After all, if the Plaintiff had not paid the $350,000, Chu would have to look towards the Defendant for the money or for a means to recover the money since the Defendant was under a primary contractual liability to pay the outstanding wages.

21.In my view, PW1’s evidence concerning the Plaintiff’s payment to Chu is fully supported by contemporaneous documentary evidence.  It has not been contradicted by DW1’s evidence, which on the contrary corroborates PW1’s evidence on the material aspect.  On this issue concerning the Plaintiff’s payment of $350,000 to Chu, I accept the evidence of PW1.  I find that the Plaintiff has proved, on a balance of probabilities, that it had paid to Chu the said sum of $350,000.

The dinner meeting of 18^th July 2001

22.It is the Plaintiff’s case that it is entitled to recover the said sum of $350,000 paid to Chu by virtue of an agreement made with the Defendant during the dinner meeting of 18^th July 2001.  The Defendant denies vehemently the existence of this agreement.

23.PW1 and DW1 have given conflicting evidence on what had happened during this dinner meeting, and the only common ground in their evidence on this point was merely that the dinner meeting was held that night in a Chinese restaurant in Kowloon City Plaza to discuss and resolve the problem caused by the sit-in protest, and that the persons present included PW1, DW1, Chu and Tang of Sinotech.

24.According to PW1’s testimony in Court, at the beginning of the dinner meeting, Tang made it clear to the persons present that Sinotech as a third party was there to help resolving the dispute between the Plaintiff, the Defendant and Chu, and that the Plaintiff would still be allowed to continue with its subcontract with Sinotech notwithstanding the sit-in protest.  Tang also stated that since the workers staged the sit-in protest because they had not received their wages, the Plaintiff and the Defendant should work out a solution to resolve the problem.  He further offered to PW1 that Sinotech could make advanced payment to the Plaintiff if the Plaintiff had financial difficulties.  Tang had however made it clear that any solution had to be mutually agreed between the Plaintiff and the Defendant.

25.PW1 testifies that he had asked DW1 for his proposal to solve the problem.  However, the reply from DW1 was merely that the Defendant did not have the ability and was not willing to continue with the Work.  DW1 further said that the Defendant would not be able to settle the wages of the workers, and asked PW1 to discuss with Chu about payment of the outstanding wages.

26.According to PW1, a note prepared by Chu on the outstanding amount of wages had been circulated around during the dinner meeting, but he had not been given a copy of that note.  At that time, he understood that Chu had prior to the meeting submitted this note to Sinotech, and was claiming over $400,000 for the outstanding wages and materials supplied.  At the trial herein, PW1 identified the note to be at page 38 of the Bundle of Exhibits.  The note was dated 18^th July 2001, issued by Chu to Tang of Sinotech, and was claiming for $489,908, being the total amount for the outstanding wages for the period between 1^st June and 18^th July 2001, and for the price of certain materials. 

27.PW1 states that he did not agree with the amount claimed by Chu during the dinner meeting.  Instead, he made it clear to Sinotech in the meeting that the Plaintiff did not owe any money to the Defendant at that point of time because no payment had fallen due according to the terms of the subcontract made between the Plaintiff and the Defendant.  Although PW1 had declared the stance of the Plaintiff, he continued to discuss with the persons present for a solution to the sit-in protest.

28.It is the evidence of PW1 that it was eventually agreed between him and DW1 that the Plaintiff would advance to the Defendant a sum of $350,000 to enable the Defendant to settle the wages owing to Chu and his workers, and that the Defendant would ensure Chu and his workers to terminate their sit-in protest and vacate from the work site the following day.  PW1 further testifies that it had also been agreed between him and DW1 that the Defendant’s subcontract would be terminated forthwith and that the Defendant would likewise vacate from the work site on 19^th July 2001, but that the Plaintiff would reserve its right to claim against the Defendant for loss and damage.

29.PW1 has explained in his evidence as to why he entered into this agreement with the Defendant on behalf of the Plaintiff.  Basically, he has put forward four reasons.   First, it was the wish of Sinotech, i.e. the Plaintiff’s superior subcontractor, that the Plaintiff should solve the problem that evening.  Tang had made it clear to PW1 that if the sit-in protest could not be resolved that night and that the construction work in the site could not be back to normal the following day, both Sinotech and the Plaintiff would be subject to severe criticism from Gammon the principal contractor.  There was therefore considerable time pressure on the Plaintiff to act promptly to put an end to the sit-in protest.  Second, PW1 understood that the Plaintiff, as the superior subcontractor to the Defendant and to Chu, was in any event obliged by the labour law to settle the outstanding wages owed to Chu and his workers by the Defendant if the Defendant failed to pay.  Third, PW1 had got a clear message from Tang that if the sit-in protest did not end the following day, Gammon would intervene into the dispute, in its capacity of the principal contractor, and pay off Chu and his workers on the Plaintiff’s behalf in order to clear Chu and his workers from the site.  Four, while Chu was claiming for over $400,000 (or $489,908 according to his note circulated in the meeting), the staff of Sinotech had prior to the meeting obtained the daily records kept by Gammon on the number of persons going in and out of the work site each day, and they had worked out, on the basis of these records, that the amount of wages owing to Chu and his workers by the Defendant was about $350,000.  PW1 considered that this amount was credible and reasonable, although the Defendant had not yet provided the Plaintiff with convincing proof that its liability for this sum of wages had in fact been incurred.

30.PW1 is adamant in saying that he had never agreed on behalf of the Plaintiff, during the dinner meeting, that the Plaintiff would not ask the Defendant to reimburse it with $350,000 after it had paid out the money to Chu and his workers.

31.Another major factual dispute regarding the agreement made during the dinner meeting between PW1 and DW1 is on the disposal of the two cheques, payment of which had been countermanded by the Plaintiff, for the total sum of $135,954 (“the unpaid cheques”).  The two cheques were dated 5^th July 2001 and 10^th July 2001 for the sums of $106,200 and $29,754 respectively.  It is common ground that the unpaid cheques were issued by the Plaintiff to pay for the Defendant’s invoice dated 8^th June 2001.  In this invoice, the Defendant claimed for $188,100, but the Plaintiff had only approved payment of a sum of $135,954. 

32.In his witness statement, PW1 has stated, “Eventually, the Plaintiff agreed to pay the Defendant a sum of HK$350,000 to redeem the 2 stopped cheques and to settle the outstanding wages of the Defendant’s workers.  It was agreed between the Plaintiff and the Defendant that out of the sum of HK$350,000 a sum of HK$135,954 was deemed to be used to settle the sums due and payable under the 2 cheques.  The Defendant agreed to return the postdated cheques to the Plaintiff.”  In his evidence-in-chief, PW1 testifies that there was no discussion during this dinner meeting on how to deal with the unpaid cheques or the money represented by them.  He maintains under cross-examination that he had not discussed but he had asked DW1 to return the unpaid cheques to the Plaintiff after he had agreed on behalf of the Plaintiff to pay $350,000 to the Defendant, and DW1 had agreed to return the unpaid cheques.

33.According to PW1, on the day after the dinner meeting, i.e. 19^th July 2001, Chu went to him to collect the agreed sum of $350,000.  PW1 then called DW1 by phone and obtained DW1’s confirmation that he could make the cheques payable to Chu directly so as to make it more convenient for Chu to settle the wages of his workers.  DW1 also said over the phone that he could not at that time return the unpaid cheques to the Plaintiff because they were presented to the bank for payment only on 16^th July 2001, and they were still processed in the bank.  PW1 says he trusted the words of DW1, and gave the two cheques referred to in paragraph 10 for the total sum of $350,000 to Chu.  After the payment, Chu, his workers and the Defendant vacated from the work site.

34.DW1 gives a different version as to what had been agreed in this dinner meeting.  He states that this meeting was held by Sinotech for the purpose of asking the Defendant and Chu to leave the work site because Sinotech was very concerned with the work progress and wanted to end the sit-in progress as soon as possible.  During the meeting, Chu demanded for payment of his team’s outstanding wages.  According to DW1, since Tang wanted to resolve the matter quickly, he agreed to pay to Chu the outstanding wages directly without passing the money through the Plaintiff or the Defendant.  DW1 further says that Chu had worked out subsequently that the outstanding wages, which were for the months of June and July 2001, was in the sum of $489,908 and recorded it in the note referred to by PW1 in evidence.  DW1 denies that this note had been circulated in the meeting, since it was written only after the meeting, but he says that Chu had already mentioned during the meeting that the amount was $489,908 which was accepted by both Tang and him (DW1), and that Tang had also agreed to pay this amount.  The note was written simply because Tang wanted something black-and-white from Chu.

35.DW1 further states in evidence that it had been agreed by all parties present in the meeting that after Sinotech had paid the agreed sum to Chu, the parties would have no claims against one another except that the Plaintiff would still be liable to the Defendant for the unpaid cheques in the total sum of $135,954.  It is the Defendant’s case that the unpaid cheques were a matter between the Defendant and the Plaintiff and had not been included in the settlement arrangement between Tang and Chu.  DW1 stresses that Sinotech had agreed not to recover the money paid to Chu from the Plaintiff or the Defendant, and the Defendant would not ask the Plaintiff to pay all sums outstanding at that time except the unpaid cheques.  According to DW1’s evidence, prior to this dinner meeting, the Plaintiff was owing to the Defendant under 5 invoices the total sum of $579,591.31.  He says that Sinotech agreed not to recover the money because the value of the work completed by the Defendant and Chu was approximately the same as the amount paid out by Sinotech.

36.DW1 denies that he had the telephone conversation on 19^th July 2001 with PW1 as testified to by PW1.  He denies that he had been made aware on 19^th July 2001 that the Plaintiff had paid $350,000 to Chu by two cheques.  It follows that he denies he had consented to the Plaintiff making the cheques payable to Chu in the total sum of $350,000.  He says that he was astonished to learn from the Amended Statement of Claim that cheques in the sum of $350,000 were given to Chu by the Plaintiff, instead of by Sinotech.

37.The conflicts in the evidence between PW1 and DW1 can only be resolved by the view of this Court on the credibility of witnesses and the reliability of their evidence.

38.Mr. Fong submits that PW1 is not credible because his evidence is wholly improbable.  He stresses that since the unpaid cheques for the total sum of $135,954 were issued by the Plaintiff in favour of the Defendant for work done up to the end of May 2001 as it was so claimed by the Defendant under its invoice dated 8^th June 2001 for progress payment, and that if the Defendant were to return the unpaid cheques to the Plaintiff upon the Plaintiff’s agreement to pay $350,000 to Chu, it would mean either that the Defendant was not going to receive any money for the work it had done not only in June and July 2001 but also in May 2001 if Chu were to retain the whole of the $350,000, or that the Defendant was not going to receive any money for the work done in June and July 2001 if Chu was required to pay over $135,954 to the Defendant out of the $350,000 to be paid by the Plaintiff.  In addition, Mr. Fong submits that Chu was claiming $489,908 as the amount of wages owing to him and his workers, and that if PW1 were telling the truth, it would have meant that Chu would accept just $214,046, or at most $350,000, in full and final settlement of his claim.  Mr. Fong submits that all these scenarios are wholly improbable and hence PW1 is not credible.

39.In considering the validity of Mr. Fong’s submission, I have borne in mind that DW1 had admitted the following matters in his evidence.  First, the Plaintiff and Chu had no contractual liability to pay wages to Chu and his workers.  Second, the amount of wages owed by the Defendant to Chu and his workers was not necessarily the same as the value of the work completed by the Defendant under its subcontract with the Plaintiff.  Third, the Plaintiff was not obliged to pay whatever sum claimed by the Defendant in its invoices, but it had a right to assess the value of the work completed by the Defendant. 

40.In my view, when the rights and liabilities amongst the Plaintiff, the Defendant and Chu are understood in their proper context, it is readily apparent that the Defendant might not receive a sum of money from the Plaintiff in excess of its liability to pay to Chu and his workers their outstanding wages when its subcontract was terminated on 19^th July 2001.  As admitted by DW1, workers were entitled to their wages once they had worked, but their work might be defective and required rectification, and hence more wages were incurred for the same work.  In other words, the value of the work, which the Defendant was entitled to charge the Plaintiff, had no direct bearing on the amount of wages that the Defendant was liable to pay to Chu and his workers.  Once this is understood, it will be wrong, in my view, to analyze the probability or improbability of PW1’s evidence in terms of whether the Defendant would receive anything out of the $350,000 paid by the Plaintiff to Chu.  The reason is that it was always possible for the Defendant to receive nothing, especially when there is evidence of complaints lodged by the principal contractor against the defective work done by the Defendant.

41.Furthermore, it must be borne in mind that it is the evidence of PW1 that it was agreed during the dinner meeting that the $350,000 was to be paid to the Defendant for it to settle its liability towards Chu and his workers for their outstanding wages.  It is also PW1’s evidence that the $350,000 was paid directly to Chu only after he had obtained the express consent of the Defendant through DW1 over the phone.  In other words, according to the evidence of PW1, the $350,000 was agreed to be and was in fact a payment to the Defendant.  Hence, in my view, it is wrong to take PW1’s evidence to mean that the Defendant had received nothing, or less than $350,000, from the Plaintiff out of the agreement.

42.Besides, as to whether the Defendant would share in the $350,000 paid by the Plaintiff to Chu, and if so how much it would get, it was entirely a matter between DW1 and Chu.  In my view, the evidence points to the fact that the sit-in protest was staged with at least the consent if not by the arrangement of DW1, and that the purpose was to extract payment from the Plaintiff.  Under cross-examination by Mr. Wong, DW1 said that after the Plaintiff had countermanded payment of the unpaid cheques, he approached the Plaintiff for an explanation, and that since he found the explanation unsatisfactory, “there had to be certain reaction from the construction site”.  DW1 denies that he organized the sit-in protest but he admits that he raised no objection when Chu notified him of his intention to do so.  At a later part of his evidence under cross-examination, DW1 says that since his direct superior subcontractor had not paid him money, “we should have corresponding action”.  Under these circumstances, it is in my view more probable than not that there was in fact an agreement or an arrangement between the Defendant and Chu on how they would compel the Plaintiff to make immediate payment, and how to share the money when the Plaintiff so paid, though the precise arrangement was a matter known only to Chu and DW1.

43.In any event, even if the Defendant was not to obtain a single cent from the $350,000 paid by the Plaintiff to Chu, it still does not mean that it obtained no substantial benefit from the Plaintiff.  First, it would have obtained $350,000 from the Plaintiff at once when the Plaintiff had just countermanded payment of the unpaid cheques for the total sum of just $135,954 on the ground that the Defendant had failed to improve the quality of its work.  No matter the ground relied upon by the Plaintiff was justified or not, the simple fact of the matter was DW1 managed to get immediate payment out of the Plaintiff.  Second, the Defendant obtained from the Plaintiff immediate cash in the sum of $350,000 to settle the outstanding wages of Chu and his workers, when it would otherwise be required to go through the assessment procedure for the work value first.  According to PW1, the assessment would not only require the Plaintiff inspecting the work done by the Defendant and assessing their value at the work site, but also necessitate the Defendant providing information or proof to justify the value of the work.  Third, according to the evidence of PW1, DW1 had told him that the Defendant had no money to pay to its workers, and when the Plaintiff advanced to it $350,000, the Defendant was put in fund immediately to enable it to discharge its contractual obligation towards Chu and his workers.  Fourth, if the $350,000 to be advanced, together with the other payments that the Plaintiff had already made, was eventually found to be more than the value of the work completed by the Defendant in the site, the Defendant would have been given money that it was never entitled to in the first place, and although the Defendant would be required to return the balance, the Defendant had already enjoyed a substantial benefit, not to mention whether it was willing or capable of returning the balance upon being called upon.

44.Regarding the argument that Chu would not have accepted a mere $350,000 when he had already worked out the outstanding wages amounting to $489,908, I am of the view that this argument has failed to take into account the fact that whatever claim Chu might have made, even if his claim had been accepted to be correct by the Defendant, it was not binding and had no effect upon the Plaintiff.  It was because the Plaintiff was never under a contractual liability towards Chu; and even if the Plaintiff was liable to pay to Chu on the basis that it was the superior subcontractor to the Defendant, Chu still had to prove that the wages claimed by him had been actually and reasonably incurred, not to mention that the Plaintiff’s liability would not have arisen without first being served with a notice under section 43D of the Ordinance, and that even if this notice had been served, the Plaintiff was not required to pay to Chu immediately but within 90 days after receipt of the notice.  In addition, there is clear and unambiguous evidence that the $350,000 was assessed by the staff of Sintoech on the basis of the daily records kept by Gammon on the number of persons going in and out of the work site everyday.  In other words, if Chu did not accept the $350,000 there and then during the dinner meeting, he would have to prove to the Plaintiff that the correct amount of outstanding wages was $489,908, and he might not be able to discharge his burden of proof in light of the fact that the Plaintiff was in possession of evidence to the contrary in the form of the daily records kept by Gammon, not to mention that the proof would cause further delay to the time when Chu and his workers could receive payment.  Bearing these factors in mind, I do not think it inherently improbable for Chu to agree to accept $350,000, or even for a smaller amount.

45.Mr. Fong has also raised a number of other points against the veracity of PW1’s evidence.  He points out that it was PW1’s testimony in Court that there was no pre-determined agenda in the meeting that the subcontract of the Defendant would be terminated, but PW1 has stated in his witness statement that “Sintoech urged the Plaintiff to terminate the employment of the Defendant and settle this matter immediately”.  PW1 maintains under cross-examination that there was no decision made before the dinner meeting for termination of the Defendant’s subcontract, but he did not rule out this was one of the steps to be taken because he was under considerable pressure from Sinotech to resolve the sit-in protest immediately.  He further says that it was DW1 who first stated during the meeting, when he was asked for a solution to the protest, that the Defendant had neither the ability nor the willingness to continue with the subcontract.  Having considered the evidence, I accept that there is a discrepancy between the oral testimony of PW1 and his witness statement, but it is just a minor discrepancy that causes me little concern.

46.Mr. Fong also says that it is PW1’s evidence that he had not paid attention to the content of the note handwritten by Chu for claiming the sum of $489,908 as outstanding wages.  He submits that the fact that PW1 had not taken a closer look at the content of this note gives rise to the inference that it had already been agreed amongst the parties present that Sinotech would pay directly to Chu the outstanding wages for June and July 2001 as testified to by DW1.  I will not draw the inference urged upon by Mr. Fong.  PW1 has made it clear in his evidence that he knew during the meeting that Chu was claiming over $400,000 but he had no interest to read his handwritten note carefully.  He provides several reasons.  First, it was inappropriate for Chu to send this note directly to Sinotech because he had bypassed the Plaintiff who was the superior subcontractor to the Defendant and Chu.  Second, the Plaintiff had no contractual responsibility to understand the claim submitted by Chu. Third, there was no time to verify the claim made by Chu.  Fourth, the purpose of the meeting was not to ascertain the amount of outstanding wages owed to Chu and his workers, but to ascertain the amount of money required to resolve the problem caused by the sit-in protest.  I find PW1’s explanation credible.  After all, the staffs of Sinotech had already worked out for him that the reasonable amount of wages to be roughly $350,000, and there was eventually an agreement for the Plaintiff to pay and for the Defendant to accept that sum.  If so, there was simply no reason for PW1 to bother further about the details of this note?

47.Referring to PW1’s evidence that there was no discussion between the Plaintiff and the Defendant during the dinner meeting about the two unpaid cheques, Mr. Fong submits strongly that this is completely illogical because the Defendant had been chasing after the Plaintiff for the outstanding payments, including the unpaid cheques, before the dinner meeting at sometime between 17^th and 18^th July 2001, and that the Defendant was to leave the site for good the following day.  Mr. Fong queries how the parties could have reached the agreement as alleged in the Plaintiff’s case if there was no discussion about the cheques at all.  Mr. Fong also points to PW1’s evidence that the Plaintiff and the Defendant had not discussed in detail about the value for the work done in June and July 2001 during the dinner meeting.  Mr. Fong asks the same rhetoric question to challenge the veracity of PW1’s evidence.

48.In this regard, I note that what has been stated by PW1 in his witness statement appears not to be exactly the same as his oral testimony in court.  I have already recited the relevant part of his witness statement in paragraph 32 above, which creates the impression that there was an express agreement during the meeting firstly that the Plaintiff would use the $350,000 to redeem the unpaid cheques, and secondly that $135,954 out of the $350,000 to be advanced would be used to settle the unpaid cheques.  In his oral testimony in Court, both during evidence-in-chief and under cross-examination, PW1 maintains that there was no discussion during the dinner meeting about these two cheques.  When I first hear the evidence, it does appear to me that there is a discrepancy between the two versions in that if there had been no discussion, how could there be any express agreement concerning the unpaid cheques as stated in PW1’s witness statement?

49.However, PW1 has made it clear under further cross-examination that while he and DW1 had not discussed about the unpaid cheques, he did ask DW1, during the dinner meeting, for the Defendant to return the unpaid cheques to the Plaintiff before the Plaintiff would advance the $350,000 to the Defendant, and DW1 had agreed to do so.  He explains that since the Plaintiff was not contractually liable to pay wages for June and July 2001 to Chu and his workers, and that since the Plaintiff was just advancing money to the Defendant to enable it to pay wages to its workers, it was just natural for him to ask for return of the unpaid cheques to the Plaintiff and told DW1 that the money to be advanced would be used to pay off the sums due under the unpaid cheques.  I have no query or reservation on PW1’s explanation.  The evidence points unequivocally that the Plaintiff was paying $350,000 to Chu when it was not liable, or at least not yet liable, to pay, and the Defendant was clearly benefited from that payment.  Under this particular scenario, it is hardly surprising that PW1 and DW1 could have made the arrangement for the Defendant to return the unpaid cheques to the Plaintiff upon a mere request or demand from PW1 without discussion between them, and DW1 simply agreed to the request or demand without further ado.  In addition, the effect of returning the unpaid cheques from the Defendant to the Plaintiff must be that the Plaintiff was discharged from its liability to pay the unpaid cheques, the money for which of course came from the $350,000 to be advanced by the Plaintiff as agreed in the dinner meeting.  In my view, the difference between what has been stated in PW1’s witness statement and his oral testimony in Court is merely difference in expression and there is no actual or material difference in substance.

50.During cross-examination, it is suggested to PW1 that if there had been such an agreement that the Defendant would return the unpaid cheques to the Plaintiff before the Plaintiff advanced the $350,000 to the Defendant, PW1 would have refrained from issuing the cheques for $350,000 to Chu, or countermanded payment of them when DW1 had not returned the unpaid cheques as agreed.  PW1 explains, firstly, that he trusted DW1, and secondly, he could see no reason why and how the Defendant could still demand him to pay for the unpaid cheques when the Plaintiff had advanced $350,000 to the Defendant.  I accept PW1’s explanation.  After all, at that point of time, the unpaid cheques were nothing but just two pieces of paper because the Plaintiff had already countermanded payment of them. 

51.As to the failure to mention or discuss the value of the work done in June and July 2001 by the Defendant during the dinner meeting, PW1 had made it quite clear that this was not an issue to be resolved during the dinner meeting.  He stresses that during the dinner meeting, DW1 on behalf of the Defendant had only raised one issue, namely, how to help the Defendant settle the wages owing to Chu and his workers so that the Defendant, Chu and his workers would vacate from the work site and terminate the sit-in protest immediately.  He also says that there was no time to discuss or agree upon other issues because the parties present at the meeting simply had no time to do so. 

52.Furthermore, in my view, it is important to bear in mind that it is never the Plaintiff’s case that once the Plaintiff had advanced $350,000 to the Defendant as agreed during the dinner meeting, or that once it had paid over the money to Chu with the consent of the Defendant, the Defendant would not be allowed to make a claim for the value of its work done, if any, in June and July 2001.  In his witness statement, PW1 has stated that while he agreed to pay $350,000 to the Defendant for it to discharge the wages owing to Chu and his workers, it was also agreed that the Defendant’s employment be terminated immediately, but “the Plaintiff would reserve its right to claim against the Defendant for loss and damage”.  In his oral testimony in Court, while he says that after he had paid the $350,000, he would ask for return of the unpaid cheques as a matter of course, and if there was any balance, he would “seek to have it set off from any other sum, and might make a claim”.  In my view, PW1 had made it clear, in his agreement to advance $350,000 to the Defendant, that the rights and liabilities of the Plaintiff and the Defendant under the subcontract were not fully and finally determined in the dinner meeting, but they were to be determined subsequently.  While the Plaintiff reserved its right to claim against the Defendant, it must follow by necessary implication that it was bound to take into account whatever claim the Defendant might have under the subcontract in extinction or reduction of the Plaintiff’s claim, and if there was a balance in favour of the Defendant, the Plaintiff could hardly resist the Defendant’s claim for the balance when it was the Plaintiff itself who did not make the agreement to pay the $350,000 a full and final settlement of the parties’ rights and liabilities.  From this perspective, I do not see the absurdities or unreasonable detriments that were said to have been suffered by the Defendant.  On the contrary, the lack of precise and in-depth discussion, let alone agreement, about the value of work done by the Defendant in June and July supports PW1’s evidence that the focus of the dinner meeting was not to resolve the work value, but to determine the amount of money that was required to enable the Defendant to discharge its liability towards Chu for unpaid wages, and to end the sit-in protest and clear the work site to ensure resumption of construction work at once.

53.Mr. Fong also questions why and how the Plaintiff got involved in paying Chu directly when the note handwritten by Chu was addressed to Tang of Sinotech.  I do not consider this argument causes me to doubt PW1’s evidence.  The evidence from PW1 as well as from DW1 shows clearly that the Defendant and Chu were not satisfied with the Plaintiff countermanding payment of the unpaid cheques, and that was why they had the sit-in protest.  Since the Plaintiff had once refused to make payment to the Defendant, it was nothing strange for Chu to approach Sinotech, the Plaintiff’s immediate superior subcontractor, for payment.  The Plaintiff got involved in the payment eventually because, as testified to by PW1, Sinotech wanted him to resolve the sit-in protest and to resolve him during the dinner meeting.

54.Mr. Fong also queries the veracity of PW1’s evidence on the ground that there was no written confirmation that Chu had agreed to accept $350,000 instead of his claim of $489,908, but one would expect something in writing to confirm that Chu was willing to accept a lesser sum.  He submits that the explanation given by PW1, i.e. he had not thought of the necessity to have it written down, as unsatisfactory and not credible.  I do not share Mr. Fong’s misgivings.  In my view, if Chu would abide by the agreement to receive only $350,000 and vacate from the site, there was no need to have a written confirmation, and if he would not abide by the agreement, the existence of a written confirmation would make no difference as he would just continue with the sit-in protest.  It was also not necessary for the Plaintiff to have such a written confirmation as evidence of payment to the Defendant.  The cheques making the payment were the best evidence to prove that money had been advanced and the quantum thereof. 

55.Mr. Fong further submits that since both PW1 and DW1 had said that the purpose of the dinner meeting was to deal with Chu’s claim for outstanding wages, it was puzzling why Chu would have got involved in paying for the two unpaid cheques, especially when the unpaid cheques related to work done by the Defendant for the period up to 30^th May 2001 but the outstanding wages claimed by Chu was for the period of June and July 2001.  I reject this submission.  It is never PW1’s evidence that Chu was asked to pay over $135,954 out of the $350,000 paid to Chu.  It is his evidence that he had agreed with the Defendant to advance $350,000 to enable it to pay wages to Chu and his workers, and that the money was paid to Chu instead of the Defendant the following day only when DW1 had on behalf of the Defendant given him the consent.  On the contrary, there was clear evidence that the sit-in protest was staged with the consent of DW1.  As to how he would share in the $350,000 paid by the Plaintiff with Chu, it was certainly a matter between them. 

56.Mr. Fong also questions why PW1 had not asked Chu to confirm on the receipt for acknowledging receipt of the two cheques for the sum of $350,000 that he was receiving $135,594 for the Defendant’s behalf, or why the Plaintiff had just issued two cheques, one for $100,000 and the other for $250,000 for Chu, but not a cheque for the sum of $135,954 if Chu was to receive payment of the unpaid cheques on the Defendant’s behalf.  Mr. Fong submits that the cheque for the sum of $100,000 was clearly insufficient for paying the unpaid cheques.  In my view, the short answer is that Chu was receiving the whole $350,000 and not just $135,594 on the Defendant’s behalf. 

57.Mr. Fong also queries PW1’s evidence that he had called DW1 on 19^th July 2001 before he paid $350,000 directly to Chu on the ground that the dinner meeting on 18^th July 2001 was held for the purpose of settling payment to Chu.  He submits that the very last thing PW1 and Sinotech wanted to do must be giving of any of the money intended for Chu to the Defendant.  I do not agree with the submission.  It has been PW1’s evidence all along that it was agreed during the dinner meeting on 18^th July 2001 that the $350,000 was a payment to the Defendant, and for this reason, there was nothing surprising that PW1 would have sought the Defendant’s consent through DW1 before paying the money directly to Chu on 19^th July 2001.  After all, it has been the Plaintiff’s case that the $350,000 was an advanced payment to the Defendant and that the Defendant would be asked to reimburse in due course.

58.I have considered Mr. Fong’s submissions carefully, including those that I have not dealt with specifically in this judgment.  I have to say none of them causes me to doubt the evidence of PW1.

59.I have also considered carefully the evidence given by DW1.  The backbone of DW1’s evidence was that the sit-in protest was resolved because Sinotech had agreed with Chu that it would pay $489,908 directly to Chu.  I have to say that his evidence simply does not fit into the factual matrix of the case and contains inherent improbabilities.   

60.First, it is a fact that Sinotech had not made any payment to Chu.  If DW1’s evidence were true, one just questions why Sinotech who had agreed to pay on 18^th July 2001 did not pay on the 19^th, but the Plaintiff who had not agreed to pay on that day made the payment instead.

61.Second, DW1’s evidence shows that there had never been any agreement between the Plaintiff, the Defendant or Chu during the dinner meeting that the Plaintiff would make any payment to Chu.  However, it is a fact that the Plaintiff had paid $350,000 to Chu.  If there had never been any agreement for the Plaintiff to pay but Sintoech had agreed to do so, it was simply absurd for the Plaintiff suddenly took it upon itself to pay $350,000 to Chu, and it was even more improbable when just 5 days ago, the Plaintiff had countermanded payment of the unpaid cheques for a much smaller sum of $135,954.

62.Third, if the evidence of DW1 were true, it was inherently improbable that Chu would accept a mere sum of $350,000 on 19^th July 2001 and left the site on that day, when just the night before Sinotech had agreed during the dinner meeting to pay him $489,908.  It is DW1’s evidence that the quantum of $489,908 had been accepted by Sinotech, the Defendant and Chu, and that Sinotech was willing to pay.

63.Fourth, DW1 cannot be telling the truth when he says that he had no idea that Chu had been paid by the Plaintiff on 19^th July 2001 the said sum of $350,000.  It is because no matter it was on the version of the agreement given by PW1 or by DW1, the Defendant had to vacate from the work site on 19^th July 2001 upon payment by either the Plaintiff or Sinotech to the Defendant or to Chu.  It is an undisputed fact that the Defendant did vacate from the work site on 19^th July 2001.  Under these circumstances, there was simply no reason why DW1 would not have ascertained from Chu whether he had obtained payment on 19^th July 2001 before the Defendant left the site.  After all, the sit-in protest was staged for the purpose of obtaining payment, and it was organized with DW1’s prior knowledge and it was staged without his objection.  If he had so asked, it was simply inherently improbable that Chu had not told him that he had just accepted $350,000 from the Plaintiff, and not $489,908 from Sinotech.  There is also the discrepancy in his evidence as to when he learned of this payment by the Plaintiff to Chu.  In his witness statement, he said he was astonished to know from the Statement of Claim filed in April 2004 that the Plaintiff had paid $350,000 to Chu, when in his oral testimony in Court, he said he learned of the payment about one odd month after the payment on 19^th July 2001.

64.Fifth, if it is accepted that DW1 did know that Chu had only received $350,000 from the Plaintiff and that there was no payment from Sinotech, it was also inherently improbable for the Defendant to accept such a reduction in the amount of payment and vacate from the work site.  It is because the $489,908, even if paid to Chu directly by Sinotech, was in truth and in fact money that the Defendant could have legitimately made a claim for the work done in the site.  If $350,000 would be sufficient to satisfy Chu’s claim, there was simply no reason why the Defendant would not seek the balance of $139,908.

65.Six, DW1 testifies that it had been agreed among all parties in the dinner meeting that after Sinotech had paid $489,908 to Chu as agreed in the meeting, there would be no claim amongst them except that the Plaintiff and the Defendant would sort out liability relating to the unpaid cheques themselves.  In my view, this is inherently improbable because there was simply no reason why Sinotech would not at least reserve its right to recover this sum of money from the Plaintiff, bearing in mind that Sinotech had no contractual relationship with the Defendant or Chu, and that it had not even had a chance to assess the value of the work completed by the Defendant or Chu.  $489,908 was a huge sum.

66.Having considered the evidence, I have no hesitation to find the evidence given by DW1 to be inherently improbable, unreasonable and not creditable.  I reject his evidence concerning the agreement reached during the dinner meeting.  I have observed the demeanour of PW1.  He strikes me as a witness of truth.  I find his evidence convincing and credible.  I prefer his evidence to that of DW1.  I find, on a balance of probabilities, that his evidence on what had happened during the dinner meeting had correctly reflected the truth.

Applicability of section 43F of the Ordinance

67.It is common ground in the evidence that the Plaintiff had no direct contractual relationship with Chu and his workers, but that it was the direct superior subcontractor to the Defendant, who in turn was the direct superior contractor of Chu and his workers.

68.Section 43F(1) of the Ordinance provides that “if a principal contractor or superior sub-contractor pays to an employee any wages under section 43C, the wages so paid shall be a debt due by the employer of that employee to the principal contractor or superior sub-contractor, as the case may be”.

69.Section 43C(1) of the Ordinance provides that if any wages become due to an employee who is employed by a sub-contractor on any work which the sub-contractor has contracted to perform, and such wages are not paid within the period specified in section 23, 24 or 25, such wages shall be payable to the employee, where the subcontractor has contracted with a superior sub-contractor, by the principal contractor and every superior sub-contractor to the subcontractor, jointly and severally.

70.The relationship between the Plaintiff, the Defendant and Chu fits exactly the requirement of section 43(1).  Section 43(2) provides that the liability of the superior subcontractor is just limited to pay wages to an employee whose employment relates wholly to the work which the principal contractor has contracted to perform and whose place of employment is wholly on the site of the building works, and that the amount of wages is limited to two months’ wages only.   In the present case, it has been accepted by DW1 that the Work that the Defendant subcontracted from the Plaintiff had been wholly performed on the site by Chu and his workers, and that Chu and his workers was claiming for outstanding wages for the period between 1^st June and 18^th July 2001, i.e. for a period of less than 2 months.  In other words, the claim made by Chu was within the Plaintiff’s liability under section 43(1).

71.On the basis of the evidence before me, it is clear that the Plaintiff is liable under section 43(1) of the Ordinance to pay to Chu and his workers wages that the Defendant had failed to pay.  I find that the Plaintiff is under a liability to pay $350,000 to Chu and his workers by virtue of section 43(1), that it had paid this sum of money to Chu and his workers, and that it is entitled to recover this sum of $350,000 from the Defendant by virtue of section 43F(1) of the Ordinance.

72.Just to put it beyond doubt, the Plaintiff’s right to recover the said sum of $350,000 from the Defendant by virtue of section 43F(1) is not affected even if the Plaintiff had paid the money to Chu without the knowledge or consent of the Defendant.  Of course, on the facts I find, the payment was made with the agreement and consent of the Defendant.

The Defendant's claim for $135,954

73.It is the Defendant’s case that it had been agreed during the dinner meeting that the parties would have no claim against one another after Sinotech had paid $489,908 to Chu, but the Plaintiff is still liable to pay to the Defendant the sum of $135,954 due under the unpaid cheques.

74.In light of my finding regarding what had been agreed during the dinner meeting, the Defendant’s case on this point must be rejected.  It is not to say that the Plaintiff need not account to the Defendant the sum of $135,954 under the two unpaid cheques.  It is just that I do not accept his evidence, and I find that there had been no agreement between the parties present in the meeting, in particular between PW1 and DW1, that the Plaintiff would not seek to recover the $350,000 to be paid to the Defendant, but that the Plaintiff on the other hand had to pay to the Defendant the amount of the unpaid cheques.

75.For reasons aforesaid, I find that the Plaintiff is entitled to recover from the Defendant the sum of $350,000 that it had paid to Chu to discharge the outstanding wages owed by the Defendant to Chu and his workers pursuant to the agreement reached during the dinner meeting on 18^th July 2001, and/or by virtue of section 43F of the Ordinance, subject to any claim of set off by the Defendant. 

76.In making its claim herein, the Plaintiff has already reduced its claim by the sum of $135,954, the total amount of the two cheques.  The question is whether or not the Defendant is entitled to ask for the Plaintiff’s claim to be set off or reduced by any other sum that it is entitled to claim against the Plaintiff under the subcontract.

The Defendant's set-off

77.In his final submissions, Mr. Fong stresses that the burden of proof lies upon the Plaintiff to prove that the amount of set off that the Defendant is entitled to is zero.  It is in my view a very bold submission because the general principle is that he who alleges must prove his case.  If the Defendant says that the Plaintiff should reduce any sum that it says can be used as a set off, the burden of proof should lie on the Defendant.

78.If I understand Mr. Fong’s submission correctly, he puts forward that proposition on the basis of section 43F(2)(b) of the Ordinance.  He says that since the Plaintiff is relying upon section 43F(1) to make its claim against the Defendant, it is bound by section 43F(2) to establish that “any sum due or may become due” under the subcontract was zero.  I have studied the relevant provisions carefully.  I am of the view that section 43F(2) does not shift the burden of proof.  Section 43F(2) simply says that any principal contractor or superior subcontractor who pays to an employee any wages under section 43C may “deduct by way of set-off the amount paid by him from any sum due or which may become due (i) to any subcontractor to whom he has subcontracted all or any part of the work that he contracted to perform being work which the employee was employed, and (ii) in respect of the work that he has subcontracted”.  It is clear by the terms of this section that it merely gives to the superior subcontractor who has paid wages to employees of his subcontractor a right to deduct by way of set off any sum that he is or may be liable to pay to the subcontractor.  It does not say that the superior subcontractor has to refute every possible claim from the subcontractor, or to take into account every claim from the subcontractor if he cannot disprove it, before it is entitled to claim for recovery of the wages paid to the employee of the subcontractor.

79.It is therefore my judgment that no matter the Plaintiff is making its claim on the basis of the agreement made during the dinner meeting on 18^th July 2001, or on the basis of section 43F(1) of the Ordinance, save for the sums that the Plaintiff has admitted, the burden of proof lies upon the Defendant to establish that it has a right to any particular sum that it seeks to set off from the Plaintiff’s claim.  This must be in accordance with logic and common sense because it is the Defendant’s case that the Plaintiff’s claim will be wholly extinguished by the sums it is entitled to claim a set-off and that the Plaintiff is liable to pay to it $229,591.31, which forms the subject matter of its alternative counterclaim.  To hold otherwise, it would have meant that the Plaintiff has a burden to disprove the Defendant’s counterclaim, and that must be plainly wrong and contrary to well established legal principles.

80.The Defendant is claiming that it is entitled to set off against the Plaintiff’s claim for the sum of $579,591.31.  This sum was made up of the aggregate sum of 5 invoices, less the payment of $171,000 which the Plaintiff had already paid. 

81.These invoices are: -

Date of Invoice	Amount ($)
11th April 2001	$  95,516.31 (“the 1st Invoice”)
3rd May 2001	$179,550.00 (“the 2nd Invoice”)
8th June 2001	$188,100.00 (“the 3rd Invoice”)
28th June 2001	$179,550.00 (“the 4th Invoice”)
7th July 2001	$116,425.00 (“the 5th Invoice”)

82.These 5 invoices can be divided into two types.  The 1^st and 5^th Invoices are the Defendant’s claim for sums due under the building of a sample flat.  The other three invoices are for periodic progress payment.

83.The Plaintiff admits that it had received the 2^nd and 3^rd Invoices from the Defendant.  It denies that the Plaintiff had been served with the other invoices at the times as alleged by the Defendant or at all.

84.It is the evidence of DW1 that each of these invoices was served upon the Defendant by fax and by letter on or about the same day as the date of the invoices.  It is however the evidence of PW1 that since he was the only person in the Plaintiff responsible for approving payment to claims made by subcontractors, when the invoice was sent to the Plaintiff, he would be given the invoice for consideration.  However, for the 1^st, 4^th and 5^th Invoices, he had no recollection of them, and he could not find them in the company files.  His conclusion is that they had not been sent to the Plaintiff.

85.In my view, the burden lies upon the Defendant to establish that the invoices had been served on the Plaintiff.  The two versions given by PW1 and DW1 are both possible and equally probable.  I therefore find that the Defendant has failed to prove, on a balance of probabilities, that the 1^st, 4^th and 5^th Invoices had been served on the Plaintiff. 

86.Furthermore, even if the Defendant had served all these invoices on the Plaintiff, it still have to prove, on a balance of probabilities, that it is entitled to make the claim not only for the item of work claimed to have been done but also the quantum of its claim.

The contract sum

87.According to the evidence of PW1, the Plaintiff had approved payment of 5% of the contract sum under the 2^nd Invoice, which on his evidence was in fact the first invoice received by the Plaintiff.  He had however approved the sum of $171,000 instead of the sum of $179,550 as claimed by the Defendant.  The difference was due to the fact that the Plaintiff was working on the basis that the contract sum for the Work was $3,800,000, whereas the Defendant claims that the contract sum was in fact $3,990,00, and it is common ground that 5% of the progress claim had to be further deducted as retention money.  If the Defendant’s claim that the contract sum of $3,990,000 is correct, the Plaintiff will be liable to pay another $8,550 to the Defendant since the Plaintiff has admitted that it has approved payment of 5% of the contract sum under the 2^nd Invoice to the Defendant.

88.It is common ground in the evidence that the Defendant has submitted a tender dated 21^st December 2000 for the Work at the tendered contract price of $3,908,780.  It is also common ground that the Plaintiff had not accepted the quoted contract sum.  On the contrary, it is the evidence of PW1 that after DW1 had submitted the tender, the parties had further discussion and it was eventually agreed that the Defendant would perform the Work at the contract sum of $3,800,000 subject to the terms stated in the Plaintiff’s letter dated 27^th December 2000 to the Defendant. 

89.This letter dated 27^th December 2000 carried with it the heading “letter of contract”.  It is however clear, from the last paragraph of the letter, that this letter could only be a counter offer from the Plaintiff, instead of being a formal contract, because the Plaintiff had asked the Defendant to sign and return a copy of the letter “should [the defendant] accept [our] above offer” so that the Plaintiff could prepare the formal order.  In his evidence in Court, PW1 has also on occasions referred to this letter as “letter of intent”.  In the premises, it is clear to me that this letter did not evidence a binding agreement on the part of the Defendant that it would execute the Works at the contract sum of $3,800,000.

90.It is the Plaintiff’s case that the Defendant had accepted this counter offer from the Plaintiff by conduct when the Defendant started to build the sample flat. Mr. Wong submits that despite the offer put forward by the Plaintiff, the Defendant did not make any counter proposal to the Plaintiff before it started working on the sample flat in February 2001.

91.In my view, to hold the Defendant had accepted the Plaintiff’s offer by conduct, it must have performed an act that indicated unequivocally that it had accepted the Plaintiff’s offer.  There is however evidence from both PW1 and DW1 that DW1 had kept on complaining that the $3,800,000 was too low a contract sum.  There is also evidence on the face of the 2^nd, 3^rd and 4^th Invoices that the Defendant was charging periodical progress payment on the basis that the contract sum was $3,990,000.  All these facts might negative the existence of an agreement that the Defendant would perform the work at just $3,800,000.

92.On the other hand, the evidence given by DW1 on the alleged contract sum of $3,990,000 is also problematic.  In his witness statement, he says that during the course of constructing the sample flat, the Defendant realized that the works required under the tender was much more complicated than what was anticipated, and therefore revised its tender price to $3,990,000 and informed the Plaintiff accordingly.  However, this version is not the same as what his evidence in Court. 

93.In his evidence-in-chief, DW1 says that the sample flat was a piece of extra work not included in the tender price.  He says that after he had received the Plaintiff’s letter dated 27^th December 2000, he found that he could not accept the terms put forward by the Plaintiff, especially on the requirement that the Defendant had to perform also the painting work on the fire services pipes for just a sum of $3,800,000.  There was therefore further discussion between him and PW1 on the contract price, and while this was going on, PW1 had asked him to start building the sample flat so that DW1 could know how difficult was the job, and then the parties could discuss the contract sum again.  DW1 says he therefore built the sample flat, but he was just doing so on the basis that he was supplying labour on behalf of the Plaintiff, and that he would make a record of such labour and charge the Plaintiff if the parties could not enter into agreement for subcontracting the Work.  He says that after completing the sample flat, he issued the 1^st Invoice and added the sum of the 1^st Invoice onto the tender price, and arrived at $3,990,000.

94.What he has said is different from what he has stated in his witness statement.  If what he has said in evidence-in-chief were true, he would not be revising the tender price to $3,990,000 on the basis of unexpected complicity of the work, but he was simply adding a further sum onto the original tender because the sample flat was extra work.  However, even if his version in court were true, i.e. he revised the tender sum by adding the cost of the sample flat of $95,516.31 under the 1^st Invoice onto the original tender price of $3,908,790, the total of these two sums was $4,004,306.31, and it was more than his alleged contract sum of $3,990,000.  DW1 then sought to explain that he just quoted a round up figure, but when he was asked again why the round up figure was not something like $4 million, he said that he had given a discount. 

95.When this issue was further probed into under cross-examination, DW1 admits that the sample flat was on the 3^rd and 4^th floor of the building, and that it was part and parcel of the original tender work and not extra work.  If so, the original tender price quoted at $3,908,780 must have included the price for building the sample flat and there was no extra work that warranted an increase in the tender price.  However, this is contrary to what DW1 has said in his evidence-in-chief.  In any event, once DW1 admits that the building of the sample flat was included in the original tender, he would not be justified in saying that he was entitled to add in the sum claimed under the 1^st Invoice into his original tender price.  When he is further questioned on his issue, DW1 then says that the 1^st Invoice was not for the whole cost of the sample flat but for the additional cost relating to painting work which was excluded in his tender.  However, what he says is not supported by his own document because the 1^st Invoice simply contained no reference to the supply of extra labour and material costs for painting work in the sample flat.  The 1^st Invoice only contained the descriptions that the Defendant had supplied labour and materials on behalf of the Plaintiff to complete the fire services pipes in the sample flat.  DW1 then sought to explain on the basis that the invoice had been written badly.

96.In my view, DW1 has not been forthcoming when he gives his evidence.  He is unable to give straightforward and simple answers, and always seeks to explain his evidence by adding in new matters when he is being confronted with his previous inconsistent or problematic answers.  He does not impress me as a witness of truth. 

97.In any event, while the Defendant had been insistent on using $3,990,000 as the contract sum for claiming progress payment, the Plaintiff had equally been consistent in rejecting that claim and approved payment on the basis that the contract sum was just $3,800,000. 

98.In my judgment, the burden of proof lies upon the Defendant to establish that the contract sum was $3,990,000 if it wants to claim further payment of $8,550 under the 1^st Invoice.  However, having considered the whole of the evidence, I am of the view that it has failed to discharge its burden of proof.  I have reservation on finding that the contract sum was $3,800,000 as testified by the Plaintiff.  In saying so, I am not doubting PW1’s credibility or his evidence, but it appears to me that the parties might genuinely have failed to reach full consensus on the contract sum, which of course had to be somewhere between $3,800,000 and $3,990,000.  I am not saying that there was no binding contract since there was no agreed contract sum.  The reason is that the Defendant had attached to its tender a bill of quantities which had been accepted by the Plaintiff to be used as a reference to assess interim payment and future variations payable to the Defendant.  Hence, the parties had at least agreed upon a formula for calculation of the value of the completed work, even if they had not agreed upon a specific contractual sum.

99.The contract sum had no bearing on the Defendant’s claim under the 3^rd and 4^th Invoice.  For the 3^rd Invoice, the Plaintiff’s case is that it had assessed the work done claimed under the invoice, and that a payment of $135,954 which the Plaintiff regarded as the value of the work completed up till that stage had been approved.  For the 4^th Invoice, the Plaintiff’s case is that it has never received and hence has never approved payment of it.

The sample flat

100.The Defendant is claiming under the 1^st and the 5^th Invoices for work done to the sample flat.  The Plaintiff denies it has ever received them.  I have already stated that I find that the Defendant has failed to prove, on a balance of probabilities, that these invoices had been served upon the Plaintiff.

101.It is PW1’s evidence that the sample flat built on the 3^rd and 4^th Floors of the hostel was not an extra piece of work, but it was part and parcel of the Works subcontracted to the Defendant.  PW1 explains that the sample flat was built just for the purpose of facilitating and improving coordination amongst various subcontractors for various kinds of subcontract work, and for the purpose of using the sample flat to set a standard for quality control of the building work.  DW1 has not disagreed with PW1’s evidence in this regard.

102.On the basis that the sample flat was part and parcel of the Work, PW1 testifies that it was the mutual understanding between the Plaintiff and the Defendant that the Plaintiff would not be required to pay for the sample flat if the Plaintiff eventually subcontracted the Work to the Defendant, regardless whether or not the Defendant was able to complete the Work.  PW1 says that as the Plaintiff had already subcontracted the Work to the Defendant, the Defendant was not entitled to apply to the Plaintiff for payment of the sample flat.  He also says that it was impossible for the Plaintiff to guarantee to the Defendant that it would be able to complete all works regardless of its performance.  The Defendant had only itself to blame for termination of the contract.

103.On the other hand, DW1 testifies that the sum due for the sample flat would be waived by the Defendant if the Defendant had been awarded with the subcontract and was able to complete all the work under the subcontract, or else the Plaintiff was required to pay for it.  DW1 says that since the Defendant was asked to leave the site before completion, the Plaintiff is liable to pay for the sample flat.

104.I have considered the evidence given by both parties very carefully.  I find that the difference between their evidence is more apparent rather than real.  In saying so, I have to stress that I accept in total the explanation given by PW1 as to why the Defendant would not have a right to any claim for the sample flat if the subcontract had been awarded to the Defendant.  He says, and I accept, it is because since the sample flat was just part and parcel of the subcontract work, the Defendant would definitely get its pay for the work done for the sample flat under the general subcontract.  In other words, the Defendant would definitely receive payment for the sample flat if the subcontract was performed till its conclusion.  The only issue is what would happen if the subcontract had been terminated prematurely.

105.With the rationale behind paying or not paying for the sample flat in mind, I am of the view that it is too drastic for PW1 to say that the Defendant would not be entitled to anything for building the sample flat if it was due to the Defendant’s fault that the subcontract was terminated.  In fact, it is the evidence of PW1 that when he approved payment of the 2^nd Invoice (the first invoice received by the Plaintiff) for claiming the first 5% of progress payment, the work done at that point of time, and for which payment was made, included at least part of the sample flat.  I do not think it is the Plaintiff’s case that if the Defendant’s subcontract was justifiably terminated, the Defendant would be asked to reimburse what had been paid under the 2^nd Invoice that might be attributed to the work done for the sample flat.  In my view, what DW1 has stated under cross-examination is more probable and accurate.  He says that the Defendant would still be entitled to payment, and it was just a question of how much the Defendant could get.  I prefer this view because according to the explanation put forward by PW1, the completed sample flat could still be regarded as part of the completed work for which the Plaintiff and the Defendant could pay for its assessed work value.  The work value might or might not be the same as the sum claimed in the Defendant’s invoice, but it has to prove its work value according to the assessment procedure adopted by the Plaintiff. 

106.In other words, what is the most important matter to be considered, for the purpose of the Defendant’s claim for set off, is the actual value of the work completed by the Defendant under its subcontract with the Plaintiff.

Actual value of the work done by the Defendant

107.The burden of proof, again, lies fairly and squarely upon the Defendant.  Even if there was some value to the work it had completed, but if it has failed to quantify the value of such work according to the subcontract it had made with the Plaintiff, the Defendant will fail to establish its defence of set-off.  Mr. Wong refers me to the case of Born Chief Co. (t/c Beijing Restaurant) v Tsai George & Another [1996] 2 HKC 282, where it was held that although it was plain from the evidence that there was significant physical damage, the plaintiff was not entitled to anything other than nominal damages because it was incumbent upon it to establish its claim and must bear the consequence if it fails to do so.

108.Mr. Fong submits that the Defendant has produced evidence to prove the value of its work done, and that the evidence comes from the 5 invoices, and that the invoices show the total amount of $579,591.31.

109.I do not accept this submission.  By its very nature, an invoice is merely a claim for payment, and it is nowhere near proof of the claim.  If a contractor has sent an invoice to his customers, and the customers raised no objection to the contents and the claim of the invoice after a reasonable period of time, the invoice can be taken to be prima facie evidence of the claim on the basis that the customer has by his conduct accepted the veracity of the invoice.  However, it is the customer’s conduct and not the invoice that proves the claim.

110.In the present case, in respect of the 1^st and 5^th Invoices relating to the sample flat, I find that they had not been sent to the Plaintiff.  I wish to add that the fact that the Plaintiff might not be required to make specific payment at all for the sample flat is another reason that causes me to doubt DW1’s evidence that he has sent the 1^st Invoice to the Plaintiff.  There was simply no point in sending an invoice to the Plaintiff when the subcontract between the Plaintiff and the Defendant was still continuing.  On the date of the 1^st Invoice, i.e. 11^th April 2001, there could not be any ground upon which the Defendant could have known or believed that the subcontract would be terminated on 19^th July 2001.            I also do not believe that the 5^th Invoice had been sent to the Plaintiff, not only for the same reason when on 7^th July 2001 when the subcontract was still continuing, there had been unsatisfactory features on the face of this document: (1) The 5^th Invoice was prepared on a piece of paper that appeared to have the word “Invoice” pre-printed, but in the caption of the document, the document was merely described as “Variation Quotation No. 1”. (2) The amount claimed for supplying labour to the Plaintiff in the 5^th Invoice was exactly the same as in the 1^st Invoice, i.e. each for the exact sum of $56,425, though the 1^st Invoice was just for installation of the fire pipes while the 5^th Invoice was for both taking down and installation of the pipes.  (3) Both the 1^st and 5^th Invoices were for work done for the same period of time, i.e. from March to April 2001, and there was simply no reason, or no logical reason why the Defendant needed to issue two invoices.  In my view, these two invoices are vivid proof that demonstrates why an invoice per se cannot be regarded as proof of the veracity of the claim contained therein.

111.In any event, there is no evidence produced by the Defendant to substantiate the work value of the sample flat under both of either of the two invoices.  I find that no sum due under the 1^st and 5^th Invoices that entitled the Defendant to set off the Plaintiff’s claim.

112.I should add here that it is not beyond the ability of the Defendant to prove the work value of any particular contractual item of work.  In fact, even if there were no lawsuit between the Plaintiff and the Defendant, the Defendant would still be liable under the contract to substantiate its claim when it asked the Plaintiff for payment.  It must have the means to do so.  Not only the completed work could be examined and assessed upon a visit to the site, the Defendant should have also kept record on the number of workers he had employed, the amount of materials he had spent on the work, and the price of such materials.  There is also the bill of quantities attached to his tender that had been accepted by the Plaintiff for assessment reference.

113.In respect of the 2^nd Invoice under which the Defendant was making a progress claim of 5% of the contract sum, the Plaintiff had accepted the invoice and paid $171,000.  The Defendant would have been entitled to claim the remaining $8,550 if it had succeeded in establishing that the contract sum was $3,990,000.  For reason I have already explained, I find that it has failed to do so.  There is therefore no further sum due under this invoice that can be used to set off the Plaintiff’s claim.

114.In respect of the 3^rd Invoice, the Plaintiff accepts that it had received it and approved a payment of $135,954, and purported to pay by the two unpaid cheques.  Although this invoice was also for a progress claim, it is not disputed in the evidence that the Plaintiff was not bound to pay 5% of the contract sum upon receipt of each invoice, but was entitled assess the value of the work done by the Defendant up till that stage.  According to the Plaintiff’s assessment, the value of the work done, after payment of the $171,000 under the 2^nd Invoice, was only $135,954.  The Defendant had not produced any evidence to prove that the actual work done under this invoice was more than what had already been assessed by the Plaintiff.  It is true that the Plaintiff had countermanded payment of the unpaid cheques, but it has already given credit to the sum of $135,954 when it makes its claim against the Defendant.  I find no other sum due under this Invoice that can be used to set off the Plaintiff’s claim.

115.In respect of the 4^th Invoice, the Plaintiff has not received it, and the Defendant has not produced any evidence to substantiate the work completed up till that point of time had the value as claimed.  The Defendant fails to establish any sum due under this invoice for the purpose of a set off.

116.On the value of the work completed by the Defendant, there is only evidence from PW1 who says that after the Defendant had vacated from the work site, he had made a check, and taking into account the work done by the Defendant as well as the rectification work that was required for the defective work done by the Defendant, the value of the work done by the Defendant was just in the region of $300,000.  He says that the Plaintiff had already paid more or less the same amount to the Defendant.  There is no doubt that the Plaintiff had already paid or allowed a total of $306,954 (i.e. $171,000 under the 2^nd Invoice, and $135,954 under the unpaid cheques) to the Defendant for the work done.  In giving his evidence under re-examination, PW1 has made it clear that the assessed value of $300,000 was for all the work done by the Defendant in the site, and not just for the months of June and July 2001.  In other words, on the evidence of PW1, there cannot be any other sums available to the Defendant for a set-off. 

117.I also accept the evidence of PW1 and find that the Plaintiff is entitled to keep the retention money under the 1^st and 2^nd Invoices.

118.Bearing in mind that the burden of proof lies upon the Defendant, and/or the positive evidence from PW1 on the value of the work that has never been contradicted, I find that the Defendant has failed to prove that the value of the work it had completed, and that in any event, the value of its work was just around $300,000.  Accordingly, I find that the Defendant fails to claim any set off.

118. For this reason, it must follow that the Plaintiff is entitled to succeed upon its claim, and that the Defendant must fail in its counterclaim.

119.There is no reason why costs should not follow the event.

Order

120.I make the following order: -

(1)   Judgment for the Plaintiff against the Defendant upon the Plaintiff’s claim in the sum of $214,046, together with interest thereon at the judgment rate from the date of Writ to the date of payment.

(2)   The Defendant’s counterclaim against the Plaintiff be dismissed.

(3)   The Defendant shall pay to the Plaintiff the costs of the Plaintiff’s claim and the Defendant’s counterclaim, to be taxed if not agreed, with certificate for counsel.  This is an order nisi which shall become absolute after 14 days from the date of handing down of this Judgment, unless an application for variation of the order is made within the said 14 days.

Mr. Damian Wong, Counsel for the Plaintiff, instructed by Messrs. Benny Kong & Peter Tang.

Mr. Raymond Fong, Counsel for the Defendant, instructed by Messrs. Fung, Wong, Ng & Lam.

(I) Appeal dismissed: see CACV275/2006 dated 27 April 2007 (II) Defendant's renewed application for leave to appeal granted by Court of Appeal. Please refer to HCMP1111/2006 dated 9 August 2006