Hop Chung Scaffolding Co Ltd v. King Fung Construction Work Co Ltd

DCCJ 1855/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.1855 OF 2004

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BETWEEN

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Coram  :  Deputy District Judge S. T. Poon in Court

Date of Hearing  :  8^th December 2006 & 12^th – 14^th December 2006

Date of Delivery of Judgment  :  20^th December 2006

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J U D G M E N T

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Introduction 

1.The Plaintiff is carrying on the business of selling and leasing scaffolding materials, mobile work platform and other construction equipment.  In this action, it claims against the Defendant for outstanding rental charges of equipment for use in 2 construction sites of which the Defendant was the sub-contractor.      

2.The Defendant is a construction company. It says the subject equipment was in fact rented by its sub-sub-contractor (Sing Yip Construction Engineering Limited (“Sing Yip”)) rather than itself. 

3.The issue in this case is therefore, whether the Defendant was a contracting party to the rental agreement with the Plaintiff.  Within this issue there is an issue as to whether Sing Yip was the sub-sub-contractor to the projects.  

4.Relevant to this sub-issue, an action at the Court of First Instance between the Defendant and Sing Yip for, inter alia, monetary claims against Sing Yip in respect of the same projects (HCA2183/2004), was tried before Mr. Recorder Ho, S.C. who handed down his judgment on 12^th December 2006.

5.The learned recorder ruled, inter alia, that Sing Yip had in fact “undertaken to carry out the works at the sites on its own account in the place of the Company”.  “[T]he Company” here referred to the Defendant in the present case.

6.The trial of the present action was originally scheduled to start on 8^th December 2006 for 4 days.  On the first day of trial I was informed by Mr.Yau, counsel for the Defendant, that the judgment of the learned recorder was not ready and the trial was therefore adjourned until the afternoon of 12^th December 2006.

7.At the beginning of this trial, parties indicated that they are willing to be bound by the said ruling of the learned recorder.  As a result, Mr. Lee, solicitor for the Plaintiff, further indicated that the Plaintiff would not call Mr. Yip Kwai Chor (“Yip”), the owner of Sing Yip, to give evidence.

8.Mr. Yau also indicated that, subject to the challenge on the reliability of the newly disclosed documents by the Plaintiff, the Defendant has no dispute on quantum should this court rule in favour of the Plaintiff on liability.

9.Without the judicious approach adopted by both parties in conducting this trial, this court could not have finished hearing this matter within time.

Background

10.Mr. Lau Kai Yan (“Lau”) was the majority shareholder of the Defendant holding 70% of the overall shares.  In or about May 2002, Yip acquired the shares of the Defendant from a Mr. Chung and became on record the remaining 30% shareholder of the Defendant.

11.Since around that time, the Defendant started to rent construction equipment from the Plaintiff.

12.In or around May 2003, the Defendant obtained 2 construction sub-contracts, one situate at Sheung Shui (“Sheung Shui Project”) and the other at Hang Hau (“Hang Hau Project”), from Hong Kong Construction Company Limited and China Overseas Construction Company Limited respectively.   

13.In respect of the Sheung Shui project, Yip signed a “Confirmation of Order”, purportedly on behalf of the Defendant, for rent of equipment from the Plaintiff.  The Confirmation of Order was dated 29^th May 2003 (“the first Confirmation of Order”) with a company chop of the Defendant affixed next to the signature of Yip.

14.As regard the Hang Hau Project, it is the Plaintiff’s case that Lau signed a confirmation of order dated 2^nd June 2003 (“the second Confirmation of Order”) on behalf of the Defendant with its company chop affixed next to the signature of Lau.  This document was addressed to one “Hing Chak Construction Engineering Co., Ltd.” rather than the Defendant.  Moreover, the delivery address was printed as “Tai Shui Hang (China Oversea site)” rather than Hang Hau.

15.There is a dispute between parties as to the nature of the 2 Confirmation of Orders.  The Plaintiff says they constituted binding contracts while the Defendant says they were just quotations of price.

16.However, there is no dispute that the equipment under the second Confirmation of Order had actually been used at the Hang Hau site.  Mr. Yau also stated in his closing submission that the Defendant would take no issue on the fact that the Defendant was mistakenly named and the site for delivery was wrongly described.

17.In or about October 2003, Yip had been detained in the Mainland due to some personal reasons and unable to attend to the 2 projects. 

18.As the rental charges of the equipment for the subject projects were not paid, the Plaintiff chased after the Defendant for payment. 

19.By a letter dated 8^th January 2004, enclosing a statement of account to it, the Plaintiff demanded the Defendant for payment of outstanding rent of equipment for the 2 projects.  Despite a further letter of demand was sent by the Plaintiff’s then solicitors to the Defendant, there was no written reply from them.  The present action was then taken out.

The Defence

20.Before I embark on setting out the evidence, it would be convenient to explain here the issues at trial as they turned out to be very different from and much more restricted then those underlying the pleaded Defence.

21.The defence of the Defendant, as submitted by Mr. Lau in his closing submission, is that, it was the intention of the contracting parties to the rental agreements, whoever they were, that the one who actually used the equipment should bear the responsibility of paying rent to the Plaintiff.  As Sing Yip was, as found by the learned recorder, the party who participated in the projects on its own account and therefore, must be the one who used the equipment; and the Defendant had made known to the Plaintiff such an arrangement, the Defendant must not be liable.

22.When Mr. Yau was questioned by this court the effects of the Confirmation of Orders on this line of defence, Mr. Yau made an analogy to a novation of contractual obligations and submitted that, even if this court finds that the Confirmation of Orders constituted binding contracts between the Plaintiff and the Defendant, the liability to pay shifted to Sing Yip in the circumstances as set out under Paragraph 21 above.

23.It can be noted that this line of defence rests heavily on the allegation that the Defendant had made known to the Plaintiff the arrangement between the Defendant and Sing Yip.  However, it was not so pleaded anywhere in the Defence.  In fact, this whole line of defence had not been properly pleaded. 

24.In the Defence filed on 18^th June 2004, the Defendant took issue on the mistaken information on the second Confirmation of Order and stated that it was of no relevance to the subject claims.  Furthermore, it was pleaded that Yip, albeit as a director and shareholder of the Defendant, had no authority to enter into this kind of rental agreement on behalf of the Defendant.

25.As indicated by Mr. Yau in his closing submission, the Defendant no longer took issue of the above at trial.  In the light of the evidence that had been presented to this court, for instance the admission of Lau that Yip had in fact the authority, it would not be difficult to understand why the original line of defence was not pursued and I am of the view that Mr. Yau had been very fair in not pursuing it.

Evidence

26.Tong gave evidence for the Plaintiff.

27.Tong had known Yip for some years before Yip started his own construction business using Sing Yip.  Since after Sing Yip was set up, the Plaintiff started to rent out construction equipment to Sing Yip for its projects. 

28.In about early 2002, Lau contacted Tong by phone saying that he was a partner of Yip and would like to place orders for construction equipment for use by the Defendant in the construction site at Ma On Shan.  Lau told him that the Defendant and Sing Yip were related companies and both Lau and Yip were directors of the Defendant.  Yip also called to confirm the same. 

29.As the Defendant was new to the Plaintiff, Tong requested Yip to use Sing Yip for signing of confirmation of order.  Yip acceded to the request and did the same also for the Defendant’s next project at King’s Park.

30.In or around April/May 2003, Yip called and asked Tong to deliver equipment to the Defendant’s site at Sheung Shui.  Yip initially asked Tong to prepare a confirmation of order for Sing Yip but changed his mind some days later and said that he would prefer to use the Defendant this time.  Lau also called and said that the Sheung Shui project was obtained under the Defendant’s name and he would use another supplier if Tong refused to sign the contract with the Defendant.

31.Tong delivered the confirmation of order for the Sheung Shui Project at the Defendant’s site at King’s Park and picked up the signed one there a couple of days later (see paragraph 13 herein).  With Tong also signed on it afterwards the rental contract between the Plaintiff and the Defendant as regard the Sheung Shui Project, as evidenced by the first Confirmation of Order, was concluded.

32.In or around May 2003, Lau told Tong that he had successfully obtained the Hang Hau Project and asked the Plaintiff to deliver equipment there.  Lau called later that he had already transferred some of the Plaintiff’s equipment at King’s Park to the Hang Hau site.

33.Tong instructed the Plaintiff’s staff to prepare a confirmation of order for the Defendant to sign.  The confirmation of order was then left at the King’s Park site for signature and Tong picked up the signed one a couple of days later (see paragraph 14 herein).

34.Tong denied Lau ever mentioned to him about the arrangement between the Defendant and Sing Yip in relation to the 2 subject projects.  Lau never told him that Sing Yip was the one to be responsible for the rental charges.

35.In cross-examination, Mr. Yau put to Tong a number of “statements of account” sent by the Plaintiff in respect of the 2 subject projects.  The statements of account were mostly addressed to Sing Yip rather than the Defendant.  As regard the Hang Hau Project, in fact there was only 1 statement of account, which was the very last one, that had been sent to the Defendant instead of Sing Yip.

36.Tong explained that it was a mistake made by the accounting officer of the Plaintiff (“Miss Lee”) and he rectified the same after he realised it when it became apparent that he had to chase after the Defendant for payment.  He said it was the same group of people who telephoned to make orders for both Sing Yip and the Defendant.  Miss Lee might have been confused.

37.Mr. Yau also asked Tong if there was any statement of account sent to the Defendant at all in respect of the project at King’s Park, Tong answered that in fact there were some but the Plaintiff had not disclosed them.

38.Lau gave evidence for the Defendant.

39.Lau explained in his evidence that, in respect of each project for rental of equipment, the Plaintiff and the Defendant would first sign a quotation.  Following that a staff member of the Defendant would telephone Tong or Miss Lee of the Plaintiff for provisions of specific equipment when in need.  The Plaintiff would then arrange delivery of the equipment and issue invoices to the Defendant for payment.

40.At the material times, as the Defendant was heavily involved in the King’s Park and other projects, it diverted the 2 subject projects to Sing Yip.  Sing Yip was the one who rented the equipment from the Plaintiff for the 2 subject projects.

41.Lau said he had told Tong that the Defendant had sub-contracted the 2 subject projects to Sing Yip.  Sing Yip would be wholly responsible for the projects and would directly contact the Plaintiff for orders of equipment.

42.Lau denied the allegations of Tong in paragraphs 30 and 32 above.  However, upon cross-examination by Mr. Lee, Lau apparently agreed that Yip had the authority to order equipment for the Defendant.

43.Lau maintained that the confirmation of orders were quotations rather than contracts but was unable to explain why parties’ signatures and chops were required for a mere quotation.

Conclusions

44.In his closing submission Mr. Yau put much emphasis on the many statements of account that were sent by the Plaintiff to Sing Yip.  He submitted that this clearly showed parties’ intention that Sing Yip was the one who would be responsible for the rental charges.

45.Mr. Yau urged this court to disbelieve the evidence of Tong.  He stressed that Tong’s explanations for the statements of account, especially as to whether there had been statements of account sent to the Defendant for the King’s Park project, were unsatisfactory.  He also commented that Tong had given inconsistent testimony when he was asked about the receipt issued to the Defendant.

46.On the other hand, Mr. Lee asked this court not to believe Lau’s evidence.  He submitted that the Defendant’s case is not supported by documents and inconsistent with its pleaded case.  Lau has been evasive when being asked about the confirmation of order.

47.I find Tong a credible witness.  Although Mr. Yau suggested to him that his boss must be very unhappy about the non-payment in relation to the 2 subject projects, I do not think Tong, as an employee of the Plaintiff with no direct monetary interest in the present case, would tend to make things up just to make the Defendant liable rather than Sing Yip.

48.I agree with Mr. Yau that the issuance of statements of account to Sing Yip is consistent to the fact that Sing Yip was the one being responsible for payment.  However, considering the previous dealings between the parties, in particular where invoices issued to Sing Yip had been settled by the Defendant before, it is also consistent to the fact that the Plaintiff did not care who in the end would make the payment.   From the view of the staff of the Plaintiff, Sing Yip and the Defendant were just the same group of people.

49.It would be better if the Plaintiff could have disclosed also the statements of account for the King’s Park project to the Defendant.  However, in view of the shortcomings of the Defendant’s evidence, this is not material enough to render Tong’s evidence unreliable.

50.I accept Tong’s explanation as to why the statements of account of the 2 subject projects were sent to the Defendant.

51.For Lau’s evidence, I agree with Mr. Lee that Lau has been evasive in giving evidence, particularly in relation to the issue of whether Yip had the authority to enter into contract and the effect of the confirmation of order.

52.At least as early as in January 2004 when the Defendant received the demand letter from the Plaintiff, the Defendant was aware that the Plaintiff would chase after it for payment.  Had the Defendant made clear to the Plaintiff the arrangement between it and Sing Yip, or to the effect that there was a novation of obligation, the Defendant would have given a reply to the Plaintiff as such and in any event would not have pleaded in the Defence something so different.

53.There was no satisfactory explanation given by Lau as to why he applied the Defendant’s company chop on the second Confirmation of Order.  The only inference is that it was the parties’ intention that the Defendant was the entity to enter into the rental agreement.

54.I find Lau not a reliable witness and in so far as what is inconsistent between the evidence of Tong and Lau, I prefer the evidence of Tong to that of Lau.

55.I find as facts that, the first and second Confirmation of Orders constituted binding agreements between the Plaintiff and the Defendant, Lau did not make known to Tong any arrangement between the Defendant and Sing Yip as regard the 2 subject projects, nor to the effect that there was a novation of obligations in relation to the rental agreements.

56.I find the Defendant liable to pay the Plaintiff the outstanding charges and damages.

57.As regard quantum, I accept the explanations given by Tong for his late discovery of the relevant documents as genuine.  I do not think the late discovery of them rendered the documents in any way unreliable.

58.In the premises, I order that judgment be entered against the Defendant for the sum of HK$941,296.80 together with interests thereon at judgment rate from date of writ until payment.

59.I can see no reason why costs should not follow the event and I make an order nisi that costs of this action, including all costs reserved, be to the Plaintiff to be taxed if not agreed.  This order nisi shall become absolute after 14 days from the date of handing down of this judgment.

Mr. Lee Hung Sang of Messrs Johnnie Yam, Jacky Lee & Co. for the Plaintiff.

Mr. Albert Yau instructed by Messrs Yip, Tse & Tang for the Defendant.