China Harbour Engineering Co (Group) v. Man Wah Conepts Engineering Ltd

HCA 2505/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2505 OF 2001

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BETWEEN

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Before: Deputy High Court Judge Carlson in Court

Dates of Hearing: 1, 2, 5, 6, 7, 8 and 27 June 2006

Date of Judgment: 16 August 2006

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J U D G M E N T

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Introduction

1.The Plaintiff is a very substantial civil engineering company which specialises in marine and infrastructure engineering projects including substantial land reclamation and site formation works.  The Defendant is a relatively small sub-contractor that depends on obtaining sub-contracts from substantial contractors such as the Plaintiff who will sub-contract to it certain parts of the works that it has been contracted to do.  This having been said the claim itself does not relate to any sub-contract as such but to unpaid hire charges in respect of plant and equipment which the Plaintiff hired out to the Defendant in order that it might carry out sub-contracted works that the Defendant had obtained from another contractor at a landfill site at Tseung Kwan O.  The claim is defended on the basis that the hire charges were not agreed, are excessive and are not reasonable.  Additionally, it seeks to set-off its counterclaim which is completely unconnected with the subject matter of the claim, relating to the building of a jetty by the Defendant for the Plaintiff which was to be used by both parties.  The jetty, having been constructed at the Defendant’s cost subsequently had to be demolished because permission had not been obtained for its construction from the relevant government department and no permission was to be forthcoming.

2.The only possible link between the claim and the counterclaim is the allegation made by the Defendant that the Plaintiff’s claim for the hire charges would be deferred and reduced to take into account the Defendant’s losses under the contract for the building of the jetty, this being the result of negotiation between the parties at the time.

3.The outcome of the action will turn entirely on whose evidence I accept.  There is also expert evidence that has been called by both sides relating to the quantification of the claim by the Plaintiff for the plant hire charges.  Both experts have spoken to what would be a reasonable hire charge at the time for the particular items of equipment which the Plaintiff had let to the Defendant.  This evidence would only become relevant if I were to hold that the amounts claimed by the Plaintiff were not agreed charges, in which case I would have to decide the matter on what would be a reasonable charge for this plant and equipment.

4.The Plaintiff’s claim for the cost of hiring I will refer to as the “hiring claim” or the “hiring charges” and the subject matter of the counterclaim I will refer to as the “jetty contract”.

5.It is helpful, at this early stage, to identify the parties respective witnesses.  The Plaintiff has called three witnesses as to fact and one expert on the quantum of the hiring charges.  The Plaintiff is a Mainland company.  Its senior management is at Beijing but it also maintains senior managers at its Hong Kong offices to oversee its operations in Hong Kong which comprise substantial contracts that are awarded to it.  One such senior manager is Mr Victor Wu who was instrumental in obtaining the hire contract with the Defendant as well as the jetty contract.  He has given evidence, as has Mr Wong Lup Yuen, its superintendent in the plant and equipment department which is responsible, as the name of the department indicates, for all the plant and machinery that the Plaintiff owns and uses as required in the course of its operations.  He has given evidence as to the agreement on the hire charges for the plant.  Thirdly, the Plaintiff has called Mr Shum Hong Sang who is a project manager and who reports to Mr Wu.  His evidence relates to the agreement and conduct of the jetty contract.  Its expert on quantum is Mr Timothy Mitchell.

6.The Defendant has called Mr Sunny Wong, the principal of the Defendant who speaks to both the hiring charges and the jetty contract.  It has also called Mr Lam Sai Cheung who had previously held a 25% stake in the Defendant but who is now no longer involved in it.  His evidence has centred on his discussions with Mr Shum concerning the jetty contract.  Its third witness is Mr Leung King Tai, who is a quantity surveyor employed by the Defendant at the time, whose evidence relates to the hiring charges and the presentation of the Plaintiff’s invoices and his preparation of certain payment certificate relating to those invoices.  It has also called Miss May Yeung who was an accounts clerk employed by it at the time.  Its expert on the quantum of the hiring charges is Mr Tang Lim Kit.

The Hiring Claim

7.The background to this matter in general is that Mr Wu and Mr Sunny Wong had met in mid-1997 and maintained a good personal relationship.  I have no doubt that Mr Wong was pleased to have done so because he saw in Mr Wu a source of potentially lucrative sub-contract work.  One such contract related to the construction of a golf driving range at Tai Po.  There is a dispute as to precisely when this happened.  The Plaintiff says that this was awarded before the hiring contract in March 1998 but the Defendant says it was after that, in about October 1998.  The Defendant relies on an invoice, Exhibit D2 from a company that it controlled which is dated October 1998 and which was sent to the Plaintiff.  The significance of this is to show that, as will become apparent shortly, notwithstanding arrears on the hire charges for the plant hire the Plaintiff remained on good terms with the Defendant for reasons which I will need to consider in more detail presently.  I find that it is more likely than not that this golf driving range contract came after the hiring contract and also after the jetty contract.  I am reinforced in this view by the fact that the Defendant is at least able to produce a contemporaneous invoice whereas the Plaintiff has not be able to produce any documentary evidence.

8.From this I turn to the hiring claim itself.  On the face of it the Plaintiff’s case is entirely straightforward.  When enquired of by Mr Sunny Wong as to whether the Plaintiff had any plant that would serve the Defendant’s purpose for hire, Mr Wu indicated that it did.  This was in view of the fact that it had just completed a substantial new airport related project and had spare capacity in respect of plant.  An agreement was struck between the two men.  Mr Lam of the Plaintiff’s relevant department became involved and after some negotiation on price an agreement was arrived at.  This agreement is said to be evidenced by a document headed “Hire Agreement” dated 24 March 1998 [See pages 1-2, Bundle 5].  A reflection of the negotiation is the fact that the hire charges are lower than the Plaintiff’s internal hire rate which the Plant and Machinery Department will charge the Plaintiff’s other departments who use the company’s equipment in the performance of contracts awarded to the Plaintiff.

9.It should be immediately observed that the Hire Agreement has not been signed by either party.  The Defendant says that the reason for this is that it only came as a quotation which in the event was not agreed.  Nevertheless, what is certain is that the plant referred to in the Hire Agreement was duly delivered to the Defendant’s nominated location at Tseung Kwan O and made use of by it.

10.What then followed was a series of invoices from the Plaintiff to the Defendant.  These are from 5 May 1998 to 18 January 1999.  They are in Bundle 5, pages 6, 7 and 11 to 17.  At Bundle 5, page 8 is a letter dated 31 July 1998 which encloses a statement of overdue invoices to the value of $1,252,008.17.  That is to say in respect of the first three invoices, none of which had been settled, even in part.  No payment was forthcoming.  The hire charges continued to mount and on 18 September 1998 [Bundle 5, page 13] a further demand was sent enclosing an account for $1,499,946.31.  At page 15 of the same Bundle is a further statement dated 21 October 1998 for $2,084,382.59. 

11.This too produced no payment.  The final statement is at Bundle 5, page 18 dated 21 January 1999 for the sum of $2,299,190.28 for unpaid invoices relating to these hire charges.

12.The Plaintiff’s case is that by then (in fact before January 1999) this level of default had come to the notice of top management in Beijing and was causing it concern.  Mr Wu invited Mr Sunny Wong to a meeting at the Plaintiff’s office at North Point on 18 December 1998 which was attended by one of the senior people from the Mainland Mr Wang Bo. He was anxious to learn from Mr Sunny Wong when and how he proposed to pay off these charges.

13.Mr Wang kept a note of the Meeting.  It is, in translation, at pages 20 and 21 of Bundle 5.

14.Understandably, great reliance is placed on this note by the Plaintiff which contains the plainest admission of liability by Mr Sunny Wong to pay the hire charges. Mr Sunny Wong does not accept that this is an accurate representation of the meeting.  It is important to keep the contents of this note well in mind because of the difficulties that both parties were then encountering with the jetty contract which I will recount shortly.

15.Apart from the terms of the note of the meeting of 18 December 1998 which recites an unequivocal admission of liability for the charges, Mr Chung, who appears for the Plaintiff, also draws attention to the fact that the Defendant’s Quantity Surveyor had prepared 10 payment certificates starting on 23 November 1998 down to a final certificate on 20 February 1999 [See Bundle B, pages 41-61].  All these certificates use the charging rate quoted by the Plaintiff in the “Hire Agreement” of 24 March 1998 [Bundle B, pages 1-2].  Mr Leung’s evidence (he being the Defendant’s quantity surveyor) in this regard is that the certificates were prepared by him as draft preliminary calculations to aid the on-going process of negotiation for these payments, against the background of the dispute over the jetty contract.  The significance of payment certificates such as these, of course, is that they are in the usual case taken as an admission by the hirer of the amounts in the certificate.

16.The final certificate is highly significant.  This is at Bundle B, page 61.  The amount there is $1,633,500 which, in rounder figures of $1.63 million, is the amount recorded in Mr Wang Bo’s note at page 20, Bundle B and which Mr Sunny Wong is recorded as having unequivocally admitted to.

Conclusion on the Hire Charges

17.What I am about to say is to be taken as subject to the effect of the jetty contract dispute on these charges.  Firstly, I am convinced on the evidence, in this regard there is no doubt in my mind, that the parties had entered into a firm agreement as evidenced by the “Hire Agreement” at pages 1-2 of Bundle 5.  The hire charges were as set out in the agreement.  The fact that nobody signed the document, although giving pause for thought, is not in the circumstances significant.  I am satisfied that the parties then conducted themselves on the basis that these were the charges.  None of the invoices that followed, and I have already referred to these, were challenged and on the contrary were admitted at the meeting of 18 December as recorded by Mr Wang Bo.  Further confirmation is to be obtained from the fact that the payment certificates reflect those hire rates.  There is nothing in Mr Leung’s evidence, which I reject in this regard, that the payment certificates were only intended to be preliminary drafts.  What he says is completely undermined by Mr Wang Bo’s note which Mr Wu has confirmed is an accurate record and which records Mr Sunny Wong’s admission to Mr Wang Bo and to Mr Wu himself during their meeting of 18 December that the amount of the final certificates was accepted by him on the Defendant’s behalf.

18.I therefore find as a fact that there was a firm agreement based on the document of 24 March 1998.  The invoices were raised in accordance with that agreement.  They were never challenged at the time — the contrary is in fact true and the Defendant can have no possible defence to the claim on these charges.  This being my view the Plaintiff is entitled to be paid the outstanding sum of $2,299,190.28 on an agreed contractual basis.  The consequence of this is that I am not required to and do not propose to go through the evidence of the two experts to decide what might or might not be a reasonable charge for the plant and equipment.  The contract of hire binds the parties and this will therefore conclude the matter.  This having been said I will need to suspend judgment in order to consider the effect of the counterclaim based on the jetty contract. 

The Jetty Contract

19.This aspect of the case demonstrates the need to record in writing in detail and with precision the terms of a contract such as this.  At about the same time as Mr Victor Wu and Mr Sunny Wong were agreeing on the plant hire contract, the latter indicated that he was about to obtain a substantial contract for the removal of soil and rubble close to Tung Chung, which is where the Plaintiff had also obtained a substantial contract which also required it to transport soil in the course of site formation work.  So far as the Plaintiff was concerned that would necessitate it to drive the soil and rubble away in substantial dump trucks at considerable cost to it.  Fortunately, there was the prospect of being allowed to use a jetty at the shore adjacent to the site where this work was being done.  If the soil could be transported away from the jetty by means of open barges then that would greatly reduce its transport costs and of course make the contract more profitable.  Similarly, the Defendant was actively tendering for a similar contract from Kumagai at a building site which was, for all intents and purposes, next to where the Plaintiff would be operating from.  Mr Sunny Wong asked Mr Wu whether the Defendant might make use of the same jetty.

20.An agreement was reached between the two men about which there is a fundamental dispute on one crucial term and it is in this regard that I have already observed that the agreement is remarkable for the absence of any written record to speak of.

21.The difficulty is and was that at this time, again being in or about March 1998, the Plaintiff required government approval for the construction and use of such a jetty.  I am satisfied on the evidence that Mr Wu must have been optimistic about approval being forthcoming.  Mr Sunny Wong was so keen on using this jetty that he offered to build it for the Plaintiff, provided his company could use it.  He says that he was very attracted to this because that would mean that he could cut the cost of soil removal and in that way his bid for the contract would be very much more competitive when compared to that of the other bidders, who could only bid on the basis of removing soil by heavy lorry.

22.The upshot was that an agreement was reached.  It is evidenced by two short letters.  Firstly, a letter dated 27 March 1998 from the Defendant to the Plaintiff [see page 3, Bundle 5].  I will set it out in full:

“Dear Sirs,

Tung Chung Station Development
Construction of Jetty

Further to the conversation between our Mr Lam and your goodself regarding the above subject, we are passed to offer that the construction of the jetty with no cost for your Company at Tung Chung. The condition is Man Wah will provide labours, plants, electricity and water for the installation, dismantling, maintenance and management of the jetty, [should other from the mentioned condition be provided by CHEC.]

We estimate that there will be 250 load of truck per day dumping through the jetty, and each load will pay HK$10.00 to CHEC, payment will be paid according to the signed docket.

Kindly request confirmation the above conditions, should you have any quires regarding the above terms, please contact the undersigned for information and clarification.”

One sees therefore that the Defendant was to build it at its cost and that it was prepared to pay the Plaintiff $10 per lorry that it would be sending to use the jetty.  It estimated that there would be 250 loads each day.

23.One can immediately see the attraction of this for the Plaintiff.  Its jetty would be build for it, free of charge, and it would be paid a, albeit modest, fee for each of the Defendant’s lorries.  Additionally, it would have all the benefit that it required from the jetty by having it available for its own use.

24.Unsurprisingly, it accepted .  Mr Shum, its project manager, replied briefly on 8 April 1998:

“Dear Sir,

Contract No.: NL7/96

Tung Chung Development Phase IIA – Infrastructure

Temporary Material Loading Jetty

We refer to your letter ref. HH/TC/JL/lmy/1.4/009 dated 27 March 1998 and subsequent discussions.  We are pleased to confirm our acceptance of your proposal as mentioned in your above letter for running the jetty.

Please process the works accordingly.”

25.The Defendant duly built the jetty and it was completed in short order.  In the meantime the Plaintiff applied for the necessary approval for the jetty from the government.  Mr Sunny Wong, anticipating that all would be well and the government would approve the jetty and its projected use, then bid for the Kumagai Contract.  He costed it on the basis of having the use of the jetty.  This being the case his bid was low and he secured the contract.  After construction the Defendant began using it after some delay over the construction of the approach road.

26.The unexpected happened shortly after that when the government said that the jetty was not approved and that it would have to be demolished.  The Plaintiff obeyed and demolished it.

27.The Defendant is now counterclaiming on the basis that all of this was predicated on Mr Victor Wu’s assurance that the government would be providing the necessary consents for the building and use of the jetty as both parties had intended to use it.  Mr Sunny Wong and Mr Lam insist that it was only because of this assurance from Mr Victor Wu that they agreed to built the jetty for the Plaintiff.  The Defendant now sues for the construction costs and all the consequential losses that it has sustained on the Kumagai Contract.

What did Mr Wu say?

28.This is absolutely fundamental to the resolution of the counterclaim.  Mr Wu says that at best all he said was that he expected that permission would be given.  He certainly did not go further than that.  He could not provide anything like the certainty that Mr Sunny Wong is contending for.  This was not his promise to make.  Nothing could be certain until the approval was given.

29.Miss Tsui, for the Defendant, asks rhetorically, why would Mr Sunny Wong go to the trouble and expense of building the jetty for free and also take the step of bidding for the Kumagai contract on the basis of his having the use of a jetty unless he had Mr Wu’s firm assurance about government approval?

30.This, of course, is a perfectly reasonable way of addressing the issue and I must now provide the answer as best I can on the basis of the evidence.

31.Let me indicate my conclusion at the outset, which is that I am satisfied that Mr Wu never went further then saying that he expected that permission would be forthcoming.  That in my judgment falls well short of a firm promise or assurance of contractual effect that permission would be forthcoming.  The truth of this is that the Defendant, which is a small company, was anxious for as much work as it could get. Mr Sunny Wong took a business gamble that Mr Wu’s prediction would come true and he saw the enormous benefit of this arrangement for his company.  He hoped that by using the jetty he could undercut the opposition and get the Kumagai contract, which is what happened except that he did not get his jetty.  I am afraid that this is no more than yet another business risk that has gone wrong for, on this occasion, a small operator such as the Defendant.  I find as a fact that nothing said by the Plaintiff’s management about government approval approached anything like a contractual promise.

The relation between the hire contract and the jetty

32.It is said on the Defendant’s behalf that the Plaintiff has shown forbearance towards the Defendant because it recognises that it is in breach of its contract over the jetty and that for this reason the question of the hire charges and its quotation was left uncertain and somewhat in the air.  Hence, the fact that no writ was forthcoming until 2001, two years after the fallout from the government’s refusal to approve the jetty.  The Plaintiff’s case is that it was prepared to be understanding because the Defendant had suffered these losses and the disappointment over the jetty.  It is simply no more than that.

33.I agree with this assessment.  Mr Wu and Mr Sunny Wong were on good terms and this was reflected in the Plaintiff’s understanding approach.  It is no more or less than that.  I am satisfied, as I have already found, that the parties had a firm agreement on the hire charges and the delay by the Plaintiff in prosecuting the claim was for the reason that I have just given.

The result on the Counterclaim

34.Given that there was never any term as to government approval being given, let alone promised by Mr Wu, the whole basis of the counterclaim must go.  This was a risk that Mr Sunny Wong willingly accepted, for which he can have no redress from the Plaintiff and the counterclaim must therefore fail and stand dismissed.  Allied to this is a claim by the Plaintiff, introduced very late, to be reimbursed the cost of demolition of the jetty.  This is an afterthought which should never have seen the light of day.  It can have no basis in contract or indeed any other basis.  I am afraid, just as the Defendant did not brother to insist on having the terms of the jetty contract spelt out in full, including any terms concerning government approval for the construction of the jetty, so must the Plaintiff suffer a similar fate as to its demolition.

The Judgment

35.There must therefore be judgment in favour of the Plaintiff on the claim in the sum of $2,299,190.28 together with interest, at one percent above prime rate, this being a commercial dispute.  Delay in prosecution of the claim is significant and so I will only allow interest for two years from the date of the final account which is the 21 January 1999 until 21 January 2001.  In my judgment, two years would have been a reasonable period in which to prosecute the action rather than wait for two years and not get to trial for a further five years.  There will also be interest at the judgment rate from the date of judgment until payment.

36.The counterclaim will stand dismissed and so the Plaintiff will also have judgment on the counterclaim.

Costs

37.I will make an order nisi that the Plaintiff will have its costs on the claim and on the counterclaim.

Mr Jerry Chung, instructed by Messrs K H Lam & Co., for the Plaintiff

Ms Winnie Tsui, instructed by Messrs Betty Chan & Co., for the Defendant