Profit Boat Development Ltd v. Craft Projects (HK) Co Ltd
Read the full judgment text of HCCT 122/2000 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 31 August 2007 before Mr Recorder Rimsky Yuen, SC.
Construction law — Joint Venture Agreement (JVA) — Whether an oral or implied joint venture existed between contractors for a subcontract work in a railway station project — Plaintiff claims breach by Defendant awarding subcontract to third party — Key issues: existence of oral JVA on 26 May 2000; existence of implied JVA; entitlement to wasted costs and lost profits. The Plaintiff and Defendant were specialist contractors with prior joint venture experience. The Plaintiff alleged an oral JVA for the Long Ping Station work was formed after meetings in May 2000. Defendant denied any joint venture, submitting tenders solely in its own name and awarding the steelwork subcontract to Havens Steel. The Plaintiff also changed the date of the alleged oral JVA during trial following evidence that Defendant’s principal was abroad at that time. The Court found no oral or implied joint venture existed, based on inconsistent conduct, absence of notification to the main contractor, and tender documents naming only the Defendant. Plaintiff’s key witness was found not credible; Defendant’s witness was reliable. As tender preparation costs were within the ambit of a prospective subcontractor, Plaintiff’s claim for wasted costs failed. Loss of profit claims stood or fell on the joint venture claims and were dismissed accordingly. Defendant is ordered to pay costs of an adjournment related to changed evidence. The dispute highlights the evidential and commercial considerations in proving joint venture agreements and recovering bid costs in construction projects.
Legal issues: Existence of Oral Joint Venture Agreement (JVA) · Existence of Implied Joint Venture Agreement (JVA) · Recovery of Wasted Costs and Expenses
Outcome: Plaintiff’s claims for breach of joint venture agreement, wasted costs, and loss of profit are dismissed; Defendant ordered to pay costs occasioned by one-day adjournment.
Cited by 2 cases · Cites 2 cases
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HCCT 122/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 122 OF 2000 ______________________ BETWEEN
______________________ Before : Mr Recorder Rimsky Yuen, SC in Court Dates of Hearing : 7 to 10, 13 to 16 and 24 November 2006 Date of Judgment : 31 August 2007 ______________________ J U D G M E N T ______________________ 1.This is the trial of the Plaintiff’s claim against the Defendant. The Parties’ Background 2.Both the Plaintiff and the Defendant are construction contractors. The Plaintiff specializes in structural steelwork, whereas the Defendant specializes in cladding work. 3.The Plaintiff is a subsidiary of the Sun Fook Kong group of companies (“SFK”). Mr. Lee Kwok Leung, Alex (“Mr. Lee”) is a director and general manager of the Plaintiff. He specializes in structuring steelwork and has been in the industry for over 30 years. Before joining the Plaintiff, Mr. Lee carried out structural steelwork for the Daido group of companies. 4.Apart from Mr. Lee, the other protagonist in this case is Mr. Grant Craft (“Mr. Craft”). Mr. Lee became acquainted with Mr. Craft in around 1994 or 1995. Thereafter, Mr. Craft had his own group of companies including Craft Construction Co. Ltd. (“Craft Construction”). 5.In around September 1998, Mr. Lee and Mr. Craft joined force to tender for a noise mitigation project know as “TDD Contract No. TM87/98 – Wong Chu Road” (“Wong Chu Road Project”). Through their respective companies, a joint venture was formed to jointly tender for the noise mitigation work of this Wong Chu Road Project. In around October 1998, the joint venture also tendered for the noise barrier work of another project known as “Tuen Mun New Town TDD Contract No. TM88/98 – Foothills Bypass and Associated Slope Stabilisation Works” (“Tuen Mun Project”). Both tenders were unsuccessful. I shall return to these two projects, especially the Wong Chu Road Project, at a later stage since both sides made reference to this previous working relationship. 6.In 1997, the Daido group of companies went into financial difficulties. In 1998, Mr. Lee acquired shares in Daido Steel Works and Engineering Ltd. (“Diado Steel”). In around late 1999, Mr. Lee and SFK had a shares swap. As a result, SFK holds 55% of the shares in the Plaintiff and Daido Steel whilst Mr. Lee holds the remaining 45% shares in these two companies. Mr. Lee was also appointed as the Plaintiff’s general manager with effect from 1 November 1999. 7.In around April 2000, Mr. Craft split up with his business partner Mr. Grant Thompson. Craft Construction was one of the companies taken over by Mr. Grant Thompson (and its name was changed to Unision Projects Co. Ltd.). On the other hand, Mr. Craft assumed control over the Defendant company. The Dispute 8.AMEC-Hong Kong Construction CC-202 Joint Venture (“AMEC-HKC JV”) was the main contractor in respect of the KCRC West Rail Yuen Long and Long Ping Station Contract No. 202 (“Contract No. 202”). By a letter dated 3 May 2000, Mr. Craft on behalf of the Defendant informed AMEC-HKC JV of the changes to the Craft group of companies outlined above and asked to be included in AMEC-HKC JV’s database for subcontract works. By a letter dated 17 May 2000, AMEC-HKC JV invited the Defendant to submit a lump sum fixed price for the supply and erection of the structural steel roof, aluminum cladding, skylight and ancillary fixtures for the Long Ping Station under Contract No. 202 (“Sub-Contract Work”). 9.At the centre of this dispute is the Plaintiff’s contention that there was a joint venture agreement (“JVA”) between the Plaintiff and the Defendant in respect of the Sub-Contract Work. As is commonly known in the construction industry, a joint venture between two or more contractors may take many different forms, including the forms of integrated joint venture and non-integrated joint venture. Generally speaking, the parties in an integrated joint venture combine their resources and share the profits and losses in an agreed proportion. On the other hand, in a non-integrated joint venture, each party takes on a specified scope of work and is responsible for the profits or losses associated with that particular scope of work. In the present case, the Sub-Contract Work comprised two main elements: the structural steelwork (“Steelwork”) and the roof cladding work (“Cladding Work”). It is the Plaintiff’s case that a JVA was reached by the parties to form a non-integrated joint venture whereby: (1) the Plaintiff and the Defendant agreed to jointly and exclusively tender for and perform the Sub-Contract Work; (2) the Plaintiff would be responsible for the Steelwork while the Defendant would be responsible for the Cladding Work. 10.No written joint venture agreement had ever been signed by the parties. The Plaintiff’s primary case is that an express oral JVA (“Oral JVA”) was reached between Mr. Lee on behalf of the Plaintiff and Mr. Craft on behalf of the Defendant at a meeting held on 26 May 2000. Alternatively, the Plaintiff contended that the JVA was partly oral, partly in writing and partly by conduct in that the parties’ dealings and conduct during the period from around 26 May 2000 to 11 July 2000 gave rise to a JVA (“Implied JVA”). 11.The Defendant did not dispute that there were dealings with the Plaintiff regarding the Steelwork. However, the Defendant denied the meeting on 26 May 2000 and any form of JVA with the Plaintiff. According to the Defendant, although Mr. Lee raised the idea of joint venture on 5 June 2000, the proposal was declined by Mr. Craft and the Plaintiff was at all material times only asked to submit price and other information as a potential subcontractor for the Steelwork. 12.On 29 May 2000, the Defendant submitted a tender dated 28 May 2000 in its own name to AMEC-HKC JV for the Sub-Contract Work. This tender was revised on 7 June 2000. The Defendant’s tender for the Sub-Contract Work was accepted by AMEC-HK JV on around 8 August 2000. The Plaintiff was not given the Steelwork. Instead, a subcontract for the Steelwork was awarded by the Defendant to Havens Steel International (“Havens Steel”). The Plaintiff contended that by awarding the subcontract to Havens Steel, the Defendant had acted in breach and thereby repudiated the JVA. After exchanging correspondence in late August and early September 2000, the Plaintiff commenced this Action on 2 November 2000. 13.The Plaintiff’s claim comprises two heads. First, the Plaintiff claimed that it has incurred wasted costs and expenses in preparing the tender and/or the Sub-Contract Work. The Plaintiff accepted that if the Court finds in favour of the Plaintiff on the JVA, such costs and expenses would have been absorbed by the Plaintiff as part of the costs of the JVA. On the other hand, should this Court reject its case on the JVA, the Plaintiff submitted that such costs and expenses should be paid by the Defendant. Second, the Plaintiff claimed that it has lost the benefit of the JVA and the revenue it would otherwise have received under it. 14.Both heads of the Plaintiff’s claim are challenged by the Defendant. Amongst others, the Defendant argued that the Plaintiff would not be able to make any profits even if it was given the Steelwork. Both sides have adduced expert evidence on quantum and I shall deal with that aspect in the later part of this Judgment. Issues & Approach 15.If there was the Oral JVA or Implied JVA, the award of the subcontract to Havens Steel would constitute a repudiation by the Defendant. The key questions in dispute that require determination are as follows:
16.Apart from the subsidiary legal issues which will be dealt with below, the key issues in dispute between the parties are primarily factual in nature. In deciding the factual disputes involved, the crucial considerations include: (1) the inherent probability of the parties’ assertions; (2) whether the parties’ assertions are consistent with their conduct and the contemporaneous documents; and (3) the credibility and demeanour of witnesses. How these considerations work in resolving factual disputes have been discussed in numerous cases and I do not think it is necessary to repeat them here. If necessary, references can be made to cases including Non-No Fashion Wholesale Ltd. v Chung Kam Wing & Anr., CACV No. 168 of 2001 (8 August 2001), at para. 38; Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336, at para. 36 & 37; and Esquire (Electronics) Ltd. v The Hongkong & Shanghai Banking Corporation Ltd., CACV No. 312 of 2005 (12 October 2006), at para. 135. Needless to say, the Plaintiff has the burden of proving the JVA (whether oral or implied) on the balance of probabilities. With these considerations in mind, I shall discuss below the main events roughly in their chronological order with a view to explaining my findings. 17.In a case of this nature, there are bound to be evidence and indicia pointing in different directions. Some may seem to support the Plaintiff’s case. Some may seem to go the other way, while others may be neutral. When considering whether there was the Oral JVA or Implied JVA, I have taken into account all the evidence adduced at the trial and all the submissions made by both sides’ Counsel. Insofar as the discussion below does not address any specific point or any particular piece of evidence relied on by the parties, that does not mean I have omitted them from my assessment. Instead, I take the view that the discussion below is sufficient to dispose of the matter and to illustrate my findings. The Change in Plaintiff’s Case 18.When this Action was commenced on 2nd November 2000, it was the Plaintiff’s contention that the Oral JVA was made at a meeting between Mr. Lee and Mr. Craft on 20 May 2000. This remained the case until the second day of the trial. 19.On 3 November 2006 (i.e. the Friday before the commencement of the trial), the Defendant served on the Plaintiff the Third Supplementary Witness Statement of Mr. Craft. This revealed, for the first time, that Mr. Craft was on holiday in London and not in Hong Kong from 16 to 26 May 2000. Copy of Mr. Craft’s passport was also annexed to Mr. Craft’s Third Supplementary Witness Statement. This means that Mr. Lee and Mr. Craft could not have met on 20 May 2000, and thus the Oral JVA contended by the Plaintiff could not have been reached on 20 May 2000. 20.When the trial commenced on 7 November 2006, the Plaintiff asked for the matter to be adjourned to the following day so as to allow the Plaintiff and its legal advisers to consider the position. The Plaintiff’s request for adjournment was not opposed (although the question of costs was reserved and will be dealt with at the end of this Judgment). When the trial resumed on 8 November 2006, the Plaintiff applied for leave to file its Re-Re-Amended Statement of Claim and also to file and serve Mr. Lee’s Third Supplementary Witness Statement. Both applications were allowed. As a consequence, the Plaintiff’s case as ran throughout the trial is that the Oral JVA was made at a meeting between Mr. Lee and Mr. Craft on 26 May 2000 (as opposed to 20 May 2000). 21.Putting aside the change mentioned above, the Plaintiff’s case concerning when the Oral JVA was made has not been entirely consistent. In its first letter before action, which is the letter to the Defendant dated 30 August 2000, the Plaintiff asserted that the “formation of the joint venture agreement could be dated back to 21 May 2000”. In another letter to the Defendant dated 6 September 2000, the Plaintiff referred to the meeting on 20 May 2000 and claimed that it was fruitful (effectively meaning that the Oral JVA was concluded on 20 May 2000). In the subsequent letter dated 21 September 2000 from its solicitors Simmons & Simmons to the Defendant, the Plaintiff asserted that the Oral JVA was reached on about 23 May 2000. 22.The contract sum in respect of the Steelwork well exceeded HK$20 million and the net profit therefrom would be in the region of several millions. If the Oral JVA was made, it would not have been regarded as an unimportant matter. Besides, Mr. Lee at the time had the habit of keeping a diary (“Diary”). He claimed that discussions concerning the Steelwork were noted in his Diary and the very same Diary was still in use when those pre-action letters were prepared. Putting aside the dispute over authenticity (which will be dealt with below), one would expect Mr. Lee to consult, amongst others, the notes he made in his Diary before giving instructions for the preparation of the letters and the documents filed in this Action. According to his First Witness Statement, he consulted his Diary when he prepared Appendix 1 to the Statement of Claim in September and October 2000. However, Mr. Lee testified in Court that he did not consult his Diary when those letters were prepared but could not really explain why he did not do so. On the whole, it is difficult to understand why those different versions were put forward by the Plaintiff in the pre-action letters. This feature by itself is neither conclusive nor fatal, but it puts the Plaintiff’s case in an unfavourable light when considered together with the other evidence. Ramifications of the Change 23.Parties in litigation did occasionally make mistakes about the date of meeting or other events. Such mistakes may or may not have any significance. In this case, the Plaintiff was not the only party who made mistake about dates. Until the making of Mr. Craft’s Third Supplementary Witness Statement on 3 November 2006, the Defendant admitted that Mr. Craft met Mr. Lee on 20 May 2000, although it denied the existence of any oral agreement. However, looking at the matter in the round, the mistake brought more significant impact on the Plaintiff’s case then on the Defendant’s case. This is not surprising as it is the Plaintiff who asserted the affirmative and the Defendant all along denied the existence of any JVA. Not only did the mistake cause the Plaintiff to change its case as to when the Oral JVA was made, it brought about other ramifications. 24.Until the service of Mr. Lee’s Third Supplementary Witness Statement on 8 November 2006 under the circumstances outlined above, the Plaintiff’s case concerning the initial events can be summarized as follows:
25.After knowing Mr. Craft was not in Hong Kong from 16 to 26 May 2000, the version put forward by Mr. Lee can be summarized as follows:
26.As Mr. Craft was not in Hong Kong from 16 to 26 May 2000, Mr. Lee must be correct that he did not obtain a set of the tender documents from Mr. Craft personally. Mr. Craft also could not be sure how Mr. Lee came to receive the tender documents. He suggested that it could be that he arranged with his secretary to leave a set of the tender documents at the reception. Mr. Lee clearly must had a discussion with someone of the Defendant before he collected the tender documents from the Defendant, although the evidence does not enable this Court to come to any positive finding as to exactly when did the discussion took place and who were involved. Beyond this limited extent, Mr. Lee’s latest version of events is not without problems. 27.First of all, Mr. Lee’s change of evidence goes beyond a mere change of date. In his original version as summarized above, the 1st and 2nd BQs were done respectively on 23 and 26 May 2000. Not only was there an interval of two clear days in between, there was no suggestion that the 2nd BQ was prepared upon discovery of errors in the 1st BQ. Besides, the Calculation Sheets were the basis for the 2nd BQ and not the 1st BQ. In Mr. Lee’s latest version, the 1st and 2nd BQs were done almost immediately one after the other upon discovery of errors in the 1st BQ and the Calculation Sheets were the basis for the 1st BQ rather than the 2nd BQ. 28.Although the discovery of a mistake as to date may occasion rectification of one’s evidence, it is difficult to comprehend why Mr. Lee would and could suddenly remember his latest version (which is significantly different from the original version he had maintained since 30 August 2000) upon knowing that Mr. Craft was not in Hong Kong until 26 May 2000. If the 2nd BQ was made because of errors in the 1st BQ, why was this not mentioned at all in Mr. Lee’s previous Witness Statements? Further, the fact that Mr. Craft was not in Hong Kong until 26 May 2000 has nothing to do with the question of whether the Calculation Sheets provided the basis for the 1st BQ or the 2nd BQ. If the Calculation Sheets were the basis for the 1st BQ, why did Mr. Lee previously state they were for the 2nd BQ? Why would the discovery of Mr. Craft’s absence from Hong Kong until 26 May 2000 cause such a change in respect of the evidence concerning the Calculation Sheets and the 1st and 2nd BQs? Looking at the matter in the round, Mr. Lee’s latest version of events has all the tell-tale signs of an after-the-event reconstruction put forward to justify his assertion that the 1st and 2nd BQs were made after the Oral JVA was concluded with Mr. Craft. 29.More importantly, Mr. Lee’s latest version does not sit well with other evidence. Appendix 1 to the Statement of Claim set out the particulars in support of the Plaintiff’s claim for wasted costs and expenses. It asserted, amongst others: (1) Mr. Lee and his colleague, a Mr. Edward To Wai Kin (“Mr. Edward To”), each spent 9 hours on 22 May 2000 to prepare tender estimate; and (2) Mr. Lee spent another 6 hours on 25 May 2000 to prepare tender estimate. In the Re-Re-Amended Statement of Claim filed on the second day of the trial, all the references in Appendix 1 to the work done during the period from 20 to 27 May 2000 were deleted. Since it is now the Plaintiff’s case that the meeting between Mr. Lee and Mr. Craft only took place on 26 May 2000, such deletion is understandable. Mr. Anthony Chan, S.C., Leading Counsel for the Plaintiff, has very properly explained the reasons for this deletion. However, what is of significance is this. During cross-examination, Mr. Lee confirmed that the works were, as a matter of fact, done on 22 and 25 May 2000 as particularized in the original Appendix 1 to the Statement of Claim. 30.In other words, although the Plaintiff does not see fit to include those works in its claim for wasted costs and expenses, Mr. Lee claimed that he and Mr. Edward To did incur time on 22 and 25 May 2000 to price the Steelwork. In paragraph 75 of his First Witness Statement, Mr. Lee stated that Appendix 1 to the Statement of Claim was prepared by him in September and October 2000 by basing upon his memory at the time, his Diary and the correspondence between the parties. These aspects of Mr. Lee’s evidence raise interesting issues. 31.As pointed out by Mr. Manzoni, the fact that tender estimate works were done on 22 and 25 May 2000 is more consistent with the Plaintiff’s original version that the 1st and 2nd BQs were submitted respectively on 23 and 26 May 2000. Of course, the 1st BQ could not have been submitted to Mr. Craft personally as he was then not in Hong Kong. Further, as demonstrated during Mr. Lee’s cross-examination, the Calculation Sheets were more consistent with the 2nd BQ than the 1st BQ although the two had a lot in common. Since it is now the Plaintiff’s case that Mr. Lee only met Mr. Craft on 26 May 2000, all these mean that the Plaintiff undertook at least 24 hours of tender estimate work even before the Oral JVA was allegedly concluded on 26 May 2000. Further, there is evidence that costs enquiry was made with Infrascan (HK) Ltd. on 26 May 2000 before he met Mr. Craft and thus before the Oral JVA was made. Such conduct contradicts Mr. Lee’s assertion that the Plaintiff was not interested to work as a subcontractor of the Defendant and the Plaintiff only priced the Steelwork on the basis that there was a joint venture with the Defendant. Instead, it shows that the Plaintiff was prepared to and did price the Steelwork even in the absence of any JVA with the Defendant. Whether Mr. Lee met Mr. Craft on 26 May 2000 32.At the trial, Mr. Lee was adamant that he met Mr. Craft and concluded the Oral JVA with him on 26 May 2000. Mr. Craft denied that such a meeting took place. If there was no such meeting on 26 May 2000, it would be more difficult for the Plaintiff to maintain its claim. On the other hand, Mr. Lee and Mr. Craft must have met each other to discuss the Sub-Contract Work, be it on 26 May 2000 or later. The question is what was discussed and agreed between the two of them. Hence, even if a meeting did take place between Mr. Lee and Mr. Craft on 26 May 2000, it does not necessarily mean the parties concluded the Oral JVA as contended by the Plaintiff. The discussion could have been on the basis of a subcontract. 33.The strongest support for the meeting on 26 May 2000 is the Calculation Sheets, which were made on the Defendant’s notepaper and dated 26 May 2000. Mr. Manzoni, Counsel for the Defendant, submitted that the fact that the calculation was done on the Defendant’s notepaper is not conclusive of a meeting with Mr. Craft on 26 May 2000. It is pertinent to note that even before he discovered he was not in Hong Kong from 16 to 26 May 2000, Mr. Craft only accepted there were meetings with Mr. Lee on 20 May and 23 May 2000 but not 26 May 2000. (Contrast paragraphs 20 and 23 against paragraph 26 of Mr. Craft’s First Witness Statement.) On the other hand, the fax from Mr. Craft to Mr. Lee sent on 5 June 2000 referred to a meeting in the previous week although the date of the meeting was not mentioned and it could be referring to a meeting held after 26 May 2000. 34.The evidence shows that Mr. Craft did not return to Hong Kong until almost 6:00 p.m. on 26 May 2000. If there was a meeting with Mr. Lee, it could only be held at some time later that evening. According to Mr. Lee’s testimony under cross-examination, it was Mr. Craft who phoned him on 26 May 2000 and asked him to come over to the Defendant’s office to discuss the matter. Then, asserted Mr. Lee, the Oral JVA was concluded and the price for the Steelwork discussed. If there were such a flurry of events on the late evening of 26 May 2000 immediately upon his return to Hong Kong, it must mean that Mr. Craft regarded the matter as urgent and wanted to see Mr. Lee immediately after he returned from holiday despite his long flight from London. If that were the case, submitted Mr. Manzoni, it would be unlikely that Mr. Craft would have forgotten about the meeting (especially when he gave instructions to prepare the Defence in December 2000) even though he disagreed what was discussed and agreed thereat. Yet, Mr. Craft did not even recall that he was away until 26 May 2000. This, as submitted by Mr. Manzoni and which I agree, supports the Defendant’s case that there was no meeting between Mr. Lee and Mr. Craft on 26 May 2000, although one cannot exclude the possibility that Mr. Lee might have met another person of the Defendant on that day and thus led to the Calculation Sheets. 35.Having considered the matter in the round (including the matters discussed below which also throw doubt on the Plaintiff’s case and the reliability of Mr. Lee as a witness), I find as a fact that no meeting took place between Mr. Lee and Mr. Craft on 26 May 2000. In any event, even if there was such a meeting on 26 May 2000 between the two of them, I do not think the parties had concluded the Oral JVA as contended by the Plaintiff. As will be discussed below, the parties’ conduct and the contemporaneous documents, when viewed as a whole, do not support the existence of the Oral JVA. Rather, the totality of the evidence points to the opposite direction. Events After 26 May 2000 Inconsistent with JVA 36.If Mr. Lee’s evidence is true and correct, both parties would have no doubt that there was a joint venture between them. According to the Plaintiff, Mr. Craft only changed his mind when he came to know that the price quoted by Havens Steel was much cheaper and thus a subcontract to Havens Steel would enable the Defendant to make more profit. Even if this is true, Mr. Craft’s change of mind could not have happened before the receipt of Havens Steel’s price proposal by the Defendant on the late afternoon of 11 July 2000. Thus, until Mr. Craft changed his mind in mid-July 2000, one would expect both parties to act on the basis that there was a joint venture between them. However, the totality of the evidence shows otherwise. (i) Main Contractor Not Informed of Joint Venture 37.First of all, the invitation to tender for the Sub-Contract Work was made by the main contractor AMEC-HKC JV to the Defendant (though the letter dated 17 May 2000 mistakenly stated the name of Craft Construction and not the Defendant). If the parties had concluded the Oral JVA, one would expect Mr. Craft to take steps to inform AMEC-HKC JV. According to Mr. Lee, he had told Mr. Craft that he preferred to use the Plaintiff as the partner in the joint venture and Mr. Craft agreed. Mr. Lee also claimed that Mr. Craft agreed to sort out the name of the party submitting the tender with AMEC-HKC JV. 38.According to Mr. Roberto Alfredo Nidelli (“Mr. Nidelli”), the Procurement Management of AMEC-HKC JV, he would expect to be informed by Mr. Craft if the Defendant wanted to submit tender in the name of a joint venture with another company. This was exactly what happened in respect of the Wong Chu Road Project when Mr. Craft informed the main contractor of that project by fax dated 30 October 1998 that Craft Construction had joined force with Daido Steel to price the steel frame and cladding works under one package. Besides, Mr. Craft sent the draft fax to Mr. Lee for his comment before he faxed it to the main contractor of the Wong Chu Road Project. Similarly, Shenzhen Rush Door Steel Fabrication Co. Ltd. (“Rush Door”), the subcontractor the Plaintiff intended to use for the Steelwork, did the same when it submitted its quotation to the Plaintiff in the name of Fu Shing Rush Door Joint Venture by a letter dated 16 August 2000. 39.No step whatsoever was taken to inform the main contractor AMEC-HKC JV by the Defendant. The Plaintiff had never taken any step to urge the Defendant to inform AMEC-HKC JV of the joint venture. Nor did the Plaintiff make any protest against the Defendant’s failure to do so. 40.Mr. Lee sought to explain that the parties were pre-occupied with the task of preparing the tender and thus did not brother with the formality. He asserted that given their past working relationship, he did not expect Mr. Craft to go back on the Oral JVA. If the business relationship was confined to two parties, one can understand why sometimes the parties were contended with an oral agreement. However, given the involvement of AMEC-HKC JV, I find Mr. Lee’s explanation difficult to follow. Although there was only limited time to prepare the tender, it would not take much time or effort to notify AMEC-HKC JV of the joint venture. A phone call followed by a fax (such as the one sent in respect of the Wong Chu Road Project) would be sufficient. As a matter of common sense and given the parties’ experience in submitting tenders, I cannot see why such a simple step would not have been taken if the Oral JVA was reached on 26 May 2000 as contended by the Plaintiff, especially there is no suggestion that a notification of their joint venture would jeopardize their chance in obtaining the Sub-Contract Work. (ii) No Preliminary Agreement as in the Wong Chu Road Project 41.There was no letter or written memorandum to record the formation of the joint venture. When Mr. Craft and Mr. Lee dealt with the Wong Chu Road Project, a one-page preliminary joint venture agreement dated 10 September 1998 was signed by the parties. Mr. Lee confirmed in his testimony that the contents of this previous preliminary joint venture agreement pretty much encapsulate the Oral JVA he claimed to have made on 26 May 2000. That being the case, it would not take too much time or effort for the parties to do the same on or shortly after 26 May 2000. Yet, no such or similar preliminary agreement was prepared let alone signed by the parties. 42.I appreciate that a draft joint venture agreement was subsequently put forward by the Plaintiff to the Defendant. That aspect of the evidence entails different consideration and will be dealt with below. (iii) Tender by Defendant in its own name 43.On 29 May 2000, the Defendant submitted a tender dated 28 May 2000 (“Tender”) to AMEC-HKC JV. The most notable feature of this Tender is the fact that it was made and submitted in the Defendant’s own name. The name of the Plaintiff was not mentioned at all. Nor was there the slightest reference to any joint venture between the Plaintiff and the Defendant. On the Plaintiff’s own case, the Oral Agreement was to the effect that the Plaintiff and the Defendant would jointly tender for the Sub-Contract Work. The fact that the Tender was only made in the Defendant’s name is clearly against the Plaintiff’s case. 44.The Plaintiff sought to argue that the agreement to joint tender for the Sub-Contract Work did not mean that the Tender had to or would be made in the joint name of the Plaintiff and the Defendant. I find such a contention surprising. First, as stated above, Mr. Lee confirmed that the preliminary joint venture agreement signed in respect of the Wong Chu Road Project encapsulated the agreement he had with Mr. Craft for the Sub-Contract Work. When one looks at the Wong Chu Road Project, the tender was made in the joint name of Craft Construction and Daido Steel. Second, according to Mr. Lee, Mr. Craft agreed to sort out the matters concerning the name in which the tender would be made with AMEC-HKC JV. There is no suggestion that Mr. Lee or Mr. Craft anticipated any problem if they were to inform AMEC-HKC JV of their joint venture. As there was nothing to cause them concern, one would expect them to inform AMEC-HKC JV and then submit a tender in their joint names. The undisputed fact that this was not done is inconsistent with the existence of an Oral JVA. 45.The contents of the Tender are also inconsistent with the existence of a joint venture. In the part concerning the Steelwork, the Tender started off by stating that the fabrication would be carried out in Mainland China but under the Defendant’s supervision. If there was a non-integrated joint venture, this would and should be the responsibility of the Plaintiff and not the Defendant. It was also stated in the Tender that it was the Defendant’s usual practice to “subcontract” specialist steel project such as the Steelwork to a local fabricator who would carry out the fabrication and erection to the Defendant’s details. 46.The Plaintiff placed much emphasis on the price included in the Tender for the Steelwork, namely, HK$26.3 million. Pointing to the 2nd BQ, Mr. Lee claimed that it was the price it supplied to Mr. Craft. Mr. Craft denied and asserted that he independently came up with the figure of HK$26.3 million. On the face of it, the Plaintiff’s argument seems attractive. It may sound too much of a co-incidence that Mr. Craft would come up with the same price for the Steelwork. 47.However, the Plaintiff’s argument that the figure of HK$26.3 million supports the existence of a joint venture is in a way a circular one. Mr. Craft would only be using Mr. Lee’s figure if the Defendant did not intend to derive any profit from the Steelwork, which would only happen if there were a non-integrated joint venture as the Plaintiff contended. On the other hand, if the figure of HK$26.3 million inserted by Mr. Craft in the Tender had already included an intended profit for the Defendant, that would mean Mr. Craft could not be using Mr. Lee’s figure. To resolve this question, one has to go beyond the Tender. 48.The fax sent by Mr. Craft on 5 June 2000 to Mr. Lee is relevant. The material part of this fax stated as follows:
49.Even if one puts aside the explanation given by Mr. Craft as to what he subjectively intended to mean by this fax, the wordings used in this fax show that Mr. Craft intended the HK$26.3 million to include the profit for the Defendant. This means Mr. Craft did not incorporate the price submitted by Mr. Lee as the Plaintiff contended. 50.Mr. Craft’s testimony that he independently come up with the figure of HK$26.3 million is not inherently improbable. He has experience in working with steel contractors. Examples one can get from the evidence include the Police Training School Project (where Mr. Craft worked with Rush Door) and the project in respect of the IBM-ITP Manufacturing Facility in Futain, Shenzhen (where Mr. Craft worked with Havens Steel). Besides, Mr. Lee agreed that the market price for steel work was fairly standard. In the circumstances, it would not be difficult for Mr. Craft to arrive at a sensible estimate. 51.After the Tender was submitted to AMEC-HKC JV, a computer printout copy was given by Mr. Craft to Mr. Lee on 29 May 2000. On the basis that the tender contained confidential information, the Plaintiff submitted that the Defendant would not have given a copy of the tender to the Plaintiff if there was no Oral JVA. The Defendant denied the tender contained any information which was really confidential. It suggested that the tender was given to Mr. Lee for the purpose of asking the Plaintiff to reduce its price. I can see some force in the Plaintiff’s argument. Strictly speaking, if the Defendant’s concern was price, there was no need to give a complete copy of the tender to the Plaintiff even if it did not contain any confidential information. Besides, why did the Defendant reveal the value engineering options proposed by the Defendant and contained in its tender if the Plaintiff was only a prospective subcontractor for the Steelwork? 52.However, in the context of the matter, it is more important to note the lack of enquiry or protest from the Plaintiff after it obtained the Defendant’s tender. As pointed out above, the tender was only made in the Defendant’s name and its contents were inconsistent with the existence of a joint venture. Mr. Lee confirmed that the joint venture was on the same basis as that for the Wong Chu Road Project and Mr. Craft had agreed to sort out with AMEC-HKC JV matters concerning in whose name the tender would be submitted. In such circumstances, one would expect Mr. Lee to raise questions with Mr. Craft as to these matters. Yet, no step was taken at all. Nor did Mr. Lee enquire with Mr. Craft as to when he would inform AMEC-HKC JV of their joint venture. (iv) Site Meeting with AMEC-HKC JV 53.According to Mr. Nidelli, he met Mr. Craft at the site shortly after the Defendant’s submission of tender on 29 May 2000. If Mr. Craft had made the Oral JVA with Mr. Lee, this meeting would be an appropriate occasion to inform Mr. Nidelli of the joint venture. However, Mr. Craft did not mention any joint venture at this meeting. Instead, he mentioned the name of Havens Steel, Rush Door and Mr. Lee when he discussed with Mr. Nidelli as to who would be the potential steel frame supplier. 54.This meeting took place shortly after the Oral JVA was allegedly made and well before the Defendant received the quotation from Havens Steel. On the Plaintiff’s own case, there would not be any reason at the time for Mr. Craft to act in ways which were inconsistent with the existence of a joint venture if one had been agreed. It is also important to note that Mr. Nidelli has no interest to serve. The outcome of this litigation does not affect him or his company. Having heard his evidence and observed his demeanour, I regard Mr. Nidelli as a reliable and credible independent witness. I have no reason not to believe his testimony. (v) Events in early June 2000 55.Apart from the fax discussed in paragraph 48 above, Mr. Lee and Mr. Craft had a meeting on 5 June 2000. According to Mr. Craft, it was at this meeting that Mr. Lee for the first time proposed the parties to work as a joint venture for the Sub-Contract Work. Mr. Craft said that he declined the proposal and emphasized that the only basis upon which the Defendant would consider working with the Plaintiff in respect of the Steelwork was on a subcontract basis. Mr. Lee’s version is very different. He said that there was discussion on the price for the Steelwork. Further, he claimed that Mr. Craft asked him to start preparing a formal JVA as the “joint venture tender” was favourable. Thus, he told Mr. Alan Chan about this and Mr. Alan Chan advised Mr. Lee that he (i.e. Mr. Alan Chan) would arrange a draft formal JVA. This Mr. Alan Chan was a director of the Plaintiff and also Daido Steel. He was also the managing director of SFK. 56.Mr. Alan Chan is one of the Plaintiff’s witnesses who had testified in support of Mr. Lee’s above version of event. According to Mr. Alan Chan, he asked Mr. Chan Chor Tung (“Mr. C.T. Chan”) to prepare a draft formal JVA. Mr. C.T. Chan has given a Witness Statement, the contents of which are in line with the versions given by Mr. Lee and Mr. Alan Chan. Mr. C.T. Chan was not called as a witness at the trial because Mr. Manzoni indicated that he did not wish to cross-examine Mr. C.T. Chan although the Defendant did not accept his testimony. While Mr. C.T. Chan also touched on another meeting that took place on 26 June 2000 (which will be dealt with below), his Witness Statement is very brief and the parties were happy to proceed without calling or cross-examining him at the trial. 57.On 7 June 2000, the Defendant sent a revised tender to AMEC-HKC JV. The price for the Steelwork was reduced from HK$26.3 million to HK$25.8 million. There was a dispute as to this reduction in price. According to Mr. Lee, he indicated to Mr. Craft at the meeting on 5 June 2000 that the Plaintiff’s bottom price was HK$25.5 million. On the other hand, Mr. Craft said that although he did ask Mr. Lee to further reduce its price, he did not wait for the Plaintiff before sending the revised tender to AMEC-HKC JV. 58.On the whole, I think these events in early June 2000 are inconsistent with the existence of a joint venture. My reasons can be summarized as follows. 59.If there were a joint venture as the Plaintiff contended, one would expect the Defendant to supply a copy of the revised tender to the Plaintiff. As the Plaintiff claimed, a copy of the original tender was supplied to it by the Defendant because they were joint venture partners. Yet, it is not in dispute that copy of the revised tender was not given to the Plaintiff. According to paragraph 37 of Mr. Lee’s First Witness Statement, he only came to know of the revised price of HK$25.8 million from the documents disclosed by the Defendant in this Action. 60.Notwithstanding the factual dispute involved, it is of significance that the price in the revised tender (i.e. HK$25.8 million) is higher than the revised price indicated by Mr. Lee (i.e. HK$25.5 million). If the price stated in the revised tender is based on the price as revised by Mr. Lee, one would not expect Mr. Craft to put in a higher price. Since the joint venture contended by the Plaintiff was a non-integrated joint venture, any profit arising from the Steelwork would go to the Plaintiff alone. Besides, the higher the price for the Steelwork, the less chance the Sub-Contract Work would be awarded by AMEC-HKC JV to the joint venture and this would in turn affect the Defendant. Thus, since the Plaintiff’s bottom-line price was HK$25.5 million, there would not be any reason for Mr. Craft to put in the higher price of HK$25.8 million in the revised tender if they had a joint venture. On the other hand, if the bottom-line price of HK$25.5 million was related to Mr. Craft as Mr. Lee suggested, the inclusion of the higher price of HK$25.8 million in the revised tender shows that Mr. Craft regarded the Plaintiff as a potential subcontractor and thus wanted to build in an element of profit in the sum of HK$0.3 million for the Defendant. 61.Like the original tender, the revised tender sent by Mr. Craft to AMEC-HKC JV on 7 June 2000 contained no reference to any joint venture. If there was a joint venture, it would not have taken Mr. Craft much time in stating this fact in the revised tender. 62.Analyzed in such way, it is inherent improbable that Mr. Craft would have asked Mr. Lee on 5 June 2000 to start preparing a draft formal JVA as Mr. Lee asserted. In the circumstances, I find as a fact that Mr. Craft did not ask Mr. Lee to start preparing a draft formal JVA. Since Mr. Alan Chan and Mr. C.T. Chan did not deal with Mr. Craft directly and would only know what they were told by Mr. Lee, their evidence in this regard does not advance the Plaintiff’s case any further. (vi) Another Sit Meeting on 20 June 2000 63.Mr. Nidelli had another meeting with Mr. Craft at the site on 20 June 2000. During this meeting, Mr. Nidelli asked Mr. Craft to confirm the identity of the Defendant’s steel frame supplier. Mr. Craft again told Mr. Nidelli that the potential steel frame supplier included Havens Steel, Rush Door and Mr. Lee. Similar to their earlier site meeting discussed above, the conduct of Mr. Craft is inconsistent with the existence of a joint venture as contended by the Plaintiff and I have no reason to doubt Mr. Nidelli’s testimony. (vii) Events during 23 to 28 June 2000 64.On 23 June 2000, Mr. Lee and Mr. Craft met again. Copies of the Request for Information (“RFIs”) and Drawing Amendment Notification (“DANs”) which were supplied by AMEC-HKC JV, as well as copy of the intended form of the CC202 Sub-Contract (i.e. the form of the sub-contract to be entered into between AMEC-HKC JV and the Defendant if the Sub-Contract Work was to be awarded to the Defendant) were given to Mr. Lee. According to Mr. Craft, the copy CC202 Sub-Contract was given to Mr. Lee for his comments since the Defendant was only willing to subcontract the Steelwork on back-to-back terms and thus it was important that the subcontractors agreed to the terms of the CC202 Sub-Contract. 65.Three clauses in the CC202 Sub-Contract merit discussion. The first one is clause 2.4, which reads as follows:
66.The provisions in clause 2.4 are clear. If there was a joint venture between the Plaintiff and the Defendant, the joint venture had to be the “Sub-Contractor” under the CC202 Sub-Contract. If the Defendant submitted a tender in its own name and the CC202 Sub-Contract was awarded to the Defendant alone, any joint venture with the Plaintiff without the prior written consent of AMEC-HKC JV would amount to a breach of clause 2.4 as it would amount to an assignment, transfer or dealing in other manner with a part of the benefit of the CC202 Sub-Contract. Further, even if asked, AMEC-HKC JV was not obliged to give consent. 67.There are also clause 2.8 and 2.9 which merits discussion. Clause 2.8 reads as follows:
68.Clause 2.9 is the clause that Mr. Lee sought to rely on and reads as follows:
69.Neither of these clauses assists the Plaintiff. Both of them only applied when the sub-contractor comprised more than one legal entity. This would not happen unless the CC202 Sub-Contract was awarded to two or more legal entities jointly as the “Sub-Contractor”, a situation which would only arise if AMEC-HKC JV was informed of a joint venture before the CC202 Sub-Contract was awarded. 70.It was Mr. Craft who gave a copy of the CC202 Sub-Contract to Mr. Lee. It can be seen that at least Mr. Craft attached importance to the terms of the CC202 Sub-Contract. That being the case, one would expect Mr. Craft to notify AMEC-HKC JV so as to avoid the need to seek consent after the CC202 Sub-Contract was awarded since AMEC-HKC JV was not obliged to give such consent under clause 2.4. Yet, Mr. Craft did not do so despite there were all these opportunities as discussed above and below. Such total lack of action on the part of Mr. Craft shows it is improbable that Mr. Craft had agreed to a joint venture right from 26 May 2000. 71.On 26 June 2000, two faxes were sent by Mr. Craft to Mr. Lee. The first one asked Mr. Lee to provide various information including the name of the fabrication yard the Plaintiff would use, name of the erection team, preliminary fabrication method statement, preliminary transportation method statement and others. This fax, in my view, is neutral. It does not in any way support the existence of a joint venture. As the purpose was to enable the Defendant to make a preliminary submission to AMEC-HKC JV, the Defendant would have to ask for the information irrespective of whether the Defendant regarded the Plaintiff as its potential subcontractor or joint venture partner. 72.In the other fax dated 26 June 2000, Mr. Craft asked Mr. Lee to review the copy of the CC202 Sub-Contract passed to him the week before (i.e. on 23 June 2000 as discussed above) and to confirm whether the Plaintiff would accept all the terms and conditions contained therein. This fax was in the following terms:
73.The Plaintiff sought to contrast this fax with the letter dated 15 July 2000 sent by the Defendant to Havens Steel, which was in the following terms:
74.The Plaintiff submitted that the difference in wording shows that the Defendant regarded the Plaintiff as its joint venture partner and not a mere prospective subcontractor. It is true that the fax to the Plaintiff and the letter to Havens Steel were drafted in different terms. However, I do not think the Plaintiff can gain any mileage from the difference. Considering the fax and the letter against the overall circumstances, I accept the Defendant’s case that both were sent with the same purpose in mind, namely, to ensure that the Plaintiff or Havens Steel (as the case may be) would agree to enter into a back-to-back subcontract if their respective tender was accepted by the Defendant. 75.Another important event that took place on 26 June 2000 is the meeting between Mr. Lee and Mr. C.T. Chan of the Plaintiff and Mr. Craft and Mr. James Alexander Stringfellow (“Mr. Stringfellow”) of the Defendant. At this meeting, a draft formal JVA (“Draft JVA”) was handed to Mr. Craft. According to Mr. Lee and Mr. C.T. Chan, Mr. Craft said that he would go through it and would come back to the Plaintiff if he had any comment. On the other hand, Mr. Stringfellow said that he was “surprised” to see the Draft JVA because Mr. Craft had not mentioned any joint venture agreement with the Plaintiff. Further, he understood the meeting to be a tender presentation by the Plaintiff in relation to the Steelwork. Mr. Stringfellow said that Mr. Craft did not show any interest in the Draft JVA and he just put it aside on the table and told Mr. Lee that he would discuss it with him later after the meeting. 76.As regards Mr. Craft, he said he was “quite astonished” to be presented with the Draft JVA as he had told Mr. Lee that the Defendant would not enter into any joint venture agreement with the Plaintiff. Nevertheless, in order to avoid embarrassing Mr. Lee in front of others, he put the Draft JVA aside during the meeting and left it to be dealt with between the two of them after the meeting. According to Mr. Craft, he asked Mr. Lee to go to his office after the meeting, where he told him again that the Defendant would not enter into any joint venture agreement with the Plaintiff. 77.Mr. Stringfellow’s evidence that he was surprised to see the Draft JVA is important. If there was a joint venture agreement, it is unlikely that Mr. Craft would not tell Mr. Stringfellow as he was also involved in the project. 78.Besides, putting aside the difference in the two versions of the Draft JVA adduced at the trial (i.e. one with the name of the joint venture inserted and the other did not), the Draft JVA contained rather detailed terms dealing with various different aspects of a joint venture relationship. On Mr. Lee’s own evidence, the terms contained in the Draft JVA, such as the one on performance bond, went well beyond what had been discussed and agreed on 26 May 2000. In the circumstances, one would expect Mr. Craft to respond to if he had previously agreed to enter into a joint venture with the Plaintiff. Yet, on the evidence, the Defendant had never responded by commenting on the Draft JVA. Nor did the Plaintiff ever follow up and ask, whether by fax or phone call, if the Defendant agreed to the terms of the Draft JVA. If the parties had reached an Oral JVA on 26 May 2000, it is unlikely that the Plaintiff would not follow up on the Draft JVA. In the circumstances, not only do I believe Mr. Stringfellow, I find Mr. Craft’s version more probable than that of Mr. Lee. 79.It is inconceivable, submitted the Plaintiff, that Mr. Lee would have gone to all the trouble of producing the Draft JVA and took it to see Mr. Craft together with Mr. C.T. Chan if Mr. Lee had previously been told by Mr. Craft that there would not be any joint venture. I do not agree. As said by Mr. Alan Chan, SFK did from time to time entered into joint venture. Thus, the preparation of the Draft JVA would not be difficult. Besides, by bringing along Mr. C.T. Chan to meet Mr. Craft so as to see if he would reconsider the position was not really such a big trouble from the point of view of getting a business deal. (viii) Tender Meeting on 29 June 2000 80.It is not disputed that a tender meeting took place on 29 June 2000 at the office of AMEC-HKC JV (“Tender Meeting”). It is also not in dispute that the persons who attended this Tender Meeting included Mr. Craft and Mr. Stringfellow of the Defendant, Mr. Lee of the Plaintiff, Mr. Nidelli and two others from AMEC-HKC JV, a representative from Rocco Design Ltd. (the resident architect), representatives of Ove Arup & Partners Hong Kong Ltd. (the resident engineers) and a representative of the Kowloon-Canton Railway Corporation. 81.What is in dispute is the way in which Mr. Lee was being introduced to representatives of AMEC-HKC JV and the others present at the Tender Meeting. According to the Plaintiff, Mr. Craft introduced the Plaintiff as the joint venture partner of the Defendant. This has all along been the Plaintiff’s case and can be seen from, for instance, paragraph (7) of the Plaintiff’s letter to the Defendant dated 6 September 2000 and paragraph 50 of Mr. Lee’s First Witness Statement. All the Defendant’s witnesses, including Mr. Nidelli and Mr. Stringfellow, denied this. According to Mr. Nidelli and Mr. Stringfellow, Mr. Lee was introduced by Mr. Craft as someone the Defendant might consider using in respect of the Steelwork but that the subcontractor would only be confirmed following further negotiation and inspection of the factories of the potential fabricators. 82.On the question of whether there was a joint venture, the evidence in respect of this Tender Meeting is of particular importance. This Tender Meeting took place before the Defendant received the quotation from Havens Steel. Thus, Mr. Craft could not have decided to switch to Havens Steel even if the Plaintiff’s theory as to why the Defendant acted in breach of the JVA was correct. If there was a joint venture, this Tender Meeting would be a good opportunity for Mr. Craft to introduce his joint venture partner to AMEC-HKC JV and the others present at the Tender Meeting. The fact that Mr. Craft made no such introduction but said that Mr. Lee was someone the Defendant might consider using in respect of the Steelwork is very telling. 83.The contents of the presentation by the Defendant at this Tender Meeting is also relevant. No where was any joint venture mentioned or hinted. The presentation referred to “Craft’s Organisation” and not the joint venture’s organization. It made no mention of the Plaintiff and stated that Craft Australia would be preparing the steel frame engineering calculation. Although Mr. Lee refused to accept this during cross-examination, the presentation would be a misrepresentation to AMEC-HKC JV and the others present if there were a joint venture between the Defendant and the Plaintiff. 84.I see no reason to doubt and do accept the testimony of Mr. Nidelli and Mr. Stringfellow regarding what happened during this Tender Meeting. Their evidence shows that Mr. Lee’s version as to what happened at this Tender Meeting cannot possibly be correct. Indeed, it is inherent improbable that on the one hand Mr. Craft introduced the Plaintiff as a joint venture partner and on the other hand made no mention of this joint venture or the Plaintiff in the presentation materials. 85.Mr. Lee relied on the fact that information provided by the Plaintiff, such as the fabrication method statement prepared by the Plaintiff, was used in the Defendant’s presentation at this Tender Meeting. I do not think that supports the existence of a joint venture. As stated by Mr. Craft at the Tender Meeting, Mr. Lee was someone the Defendant might consider using for the Steelwork. Thus, it is understandable that the Defendant presented the Plaintiff’s method statement at the Tender Meeting. It is pertinent to note that the Plaintiff also asked for method statement from Rush Door when the latter was invited to submit a tender for the Steelwork as the Plaintiff’s potential subcontractor. (ix) Events in around mid-July 2000 86.By a fax dated 11 July 2000, Mr. Craft informed Mr. Lee that he was planning to make a first submission to AMEC-HKC JV. For that purpose, Mr. Craft asked for various information including: (1) the name of the company Mr. Lee would use, stating that it would be necessary to explain where the “Daido” project references fit in and also to explain what happened to Daido if Mr. Lee intended to use the Plaintiff; (2) the organization chart for “Daido/Profit Boat”; and (3) “a statement showing the relationship between Daido/Profit Boat and Rush Door”. 87.Mr. Lee suggested that there was no need for the Defendant to make this enquiry if it only intended to enter into a subcontract with the Plaintiff as there was no need to explain the relationship between the Plaintiff and Rush Door. I do not agree. Since the Defendant was about to make a submission to AMEC-HKC JV, it is understandable that such an enquiry was made. Indeed, the making of this enquiry by Mr. Craft and its contents go against the Plaintiff’s case. As stated above, it is Mr. Lee’s assertion that he told Mr. Craft at the meeting on 26 May 2000 that he preferred using the Plaintiff as the partner in the joint venture and Mr. Craft agreed. If that was the case, why would Mr. Craft asked for the information highlighted in the preceding paragraph. Each of those enquiries shows that Mr. Craft did not know if Mr. Lee would use the Plaintiff or Daido for the Steelwork. 88.Mr. Lee replied by a fax also of 11 July 2000. This fax did not mention any joint venture. Nor did it say that the parties had agreed to use the Plaintiff as the Defendant’s joint venture partner. Instead, it simply stated at the outset that the name of the company for the structural steelwork is Profit Boat Development Ltd. (i.e. the Plaintiff). 89.On the same day, namely, 11 July 2000, the Defendant received the quotation from Havens Steel which gave a quote at HK$12,183,461.00 (excluding the price for erection). A copy of Havens Steel’s quotation was given by Mr. Craft to Mr. Lee at their meeting on the same evening. Mr. Lee asserted that Mr. Craft asked the Plaintiff to use Havens Steel as the fabricator. Mr. Lee also claimed that a copy of Havens Steel’s quotation would not be given to him if Mr. Craft only treated the Plaintiff as a potential subcontractor as such information confidential in nature. On the other hand, Mr. Craft explained that he wanted to show Mr. Lee that the price quoted by the Plaintiff was too high. 90.I accept that strictly speaking Mr. Craft might not need to give Mr. Lee a copy of Havens Steel’s quotation. He could simply told Mr. Lee that the Defendant had obtained cheaper quotation from another potential subcontractor and asked the Plaintiff to reduce its price. However, I do not think Mr. Craft’s supply of Havens Steel’s quotation to Mr. Lee necessarily supports a joint venture irrespective of whether Mr. Craft regarded the quote confidential in nature. If the parties had entered into a non-integrated joint venture on 26 May 2000 as the Plaintiff asserted, Mr. Craft would not be interested as to which company the Plaintiff would use as the fabricator. In other words, if there was a joint venture, there would not be any reason or motive for Mr. Craft to supply Havens Steel’s quotation to Mr. Lee and asked him to use Havens Steel as the fabricator. Under a non-integrated joint venture, the Plaintiff would be responsible for the profit and loss in respect of the Steelwork. It would not be the Defendant’s concern as to which company should be used as the fabricator, and still less the price to be charged by such fabricator. It would be a matter entirely for the Plaintiff to consider and decide. Thus, had there been a joint venture, it would be improbable for Mr. Craft to pass a copy of Havens Steel’s quotation to Mr. Lee. Notwithstanding the debate as to whether the information was confidential, the fact that Mr. Craft did pass Havens Steel’s quotation to Mr. Lee goes to show that there was no joint venture. 91.Mr. Lee and Mr. Craft went for dinner at a Japanese restaurant on the same night. There is a debate as to what was discussed at that dinner meeting. However, considering the totality of evidence, I do not think the dispute as to what was discussed at that dinner meeting material in determining the question of whether there was a joint venture between the parties. 92.On 12 July 2000, Mr. Craft sent a fax to Mr. Nidelli of AMEC-HKC JV. In respect of the Steelwork, Mr. Craft wrote as follows:
93.Although this fax was sent after the Defendant received the quotation from Havens Steel, the part highlighted above is of relevance. If Mr. Craft had introduced the Defendant as a joint venture partner, it is difficult to see how Mr. Craft would suddenly wrote to Mr. Nidelli talking about potential sub-contractors and stating he intended to use either Havens Steel or the Plaintiff. Even if Mr. Craft wanted to change his position as alleged by the Plaintiff, one would expect Mr. Craft to explain why he changed his position and that there was no longer any joint venture with the Plaintiff. Yet, none of these was done by Mr. Craft. On the other hand, the contents of this fax are consistent with Mr. Craft’s evidence and also Mr. Nidelli’s evidence as to what he was told by Mr. Craft at the two site meetings discussed above. (x) Events on 10 August 2000 and thereafter 94.Mr. Craft went to Australia during the period from 16 to 24 July 2000. On 4 August 2000, Mr. Craft visited the factors of Havens Steel and Rush Door together with Mr. Stringfellow and another staff. On 8 August 2000, AMEC-HKC JV formally awarded the C202 Sub-Contract to the Defendant. At a meeting on 10 August 2000, Mr. Craft told Mr. Lee that the Defendant had decided to subcontract the Steelwork to Havens Steel. Subsequent to a lunch meeting on 21 August 2000 between Mr. Craft and Mr. Eric Lo of the Defendant and Mr. Lee of the Plaintiff, there were exchange of pre-action correspondence from 30 August 2000 onward. Although the Plaintiff’s evidence on the events that happened during this period is not entirely the same as that of the Defendant, I do not think the differences are material in the determination of whether there was an Oral JVA or an Implied JVA. The Diary 95.Mr. Lee’s Diary, referred to in the earlier part of this Judgment and which was in the form of a note book, was adduced in evidence at the trial. The Diary has created much controversy. The Defendant disputed the authenticity of certain parts of this Diary and submitted that several pages thereof were made after the event with a view to fortifying Mr. Lee’s testimony. 96.The page which is most heavily relied on by Mr. Lee is the one at page 2995 of Bundle F1. The material part contains the number “25” at the top and then reads as follows:
97.Mr. Lee testified that the entry on this page should have been made on around 26 May 2000 although he did not seem to be sure about this. He claimed that the number “25” on this page should be the date, which was intended to mean 25 May 2006. He sought to explain that this date must be a mistake on his part, possibly because he misread the date from a calendar or his watch when he made this entry. Mr. Lee also asserted that the entry on this page shows what was agreed with Mr. Craft on 26 May 2000. 98.As submitted by Mr. Manzoni, I find it difficult to accept that the number “25” is a reference to the date. The ways in which the date was written by Mr. Lee on the other pages in this Diary are very different. In other places in the Diary, Mr. Lee wrote both the date and month and sometimes the year as well. This appears to be the only entry where the date is not properly recorded and there is no explanation for such a difference. 99.Besides, if this page in his Diary did record the agreement he had with Mr. Craft at the meeting on 26 May 2000, one wonders why Mr. Lee has maintained since the commencement of this Action until the second day of the trial that the Oral JVA was reached on 20 May 2000. As noted above, Mr. Lee said in his First Witness Statement that he consulted his Diary when he prepared Appendix 1 to the Statement of Claim. If so, it should have alerted Mr. Lee that the Oral JVA was made on 26 May 2000. Even if Mr. Lee did not then realize that the number “25” was a mistake (as he then did not know that Mr. Craft was not in Hong Kong from 16 to 26 May 2000), Mr. Lee would have mistakenly thought that the Oral JVA was made on 25 May 2000 if the number “25” was a reference to the date and would have given instructions to prepare the Statement of Claim on that basis. Yet, Mr. Lee had not done that and the Statement of Claim was prepared on the basis that the Oral JVA was made on 20 May 2000. Besides, Appendix 1 to the Statement of Claim (which, on Mr. Lee’s own case, was prepared by reference to his Diary) did not suggest any meeting on 25 May 2000. 100.Furthermore, the notes made on this page are rather brief. Only certain key words were jotted down. A subcontract between the Defendant and AMEC-HKC JV is inconsistent with the joint venture Mr. Lee testified, as he confirmed that the Preliminary Joint Venture Agreement in respect of the Wong Chu Road Project encapsulated the Oral JVA he had with Mr. Craft. The words “also may award to PB Craft JV” are not definite at all. Notwithstanding the assertions made by Mr. Lee in the course of his testimony, I do not find the entries on this page sufficiently clear to indicate any JVA. To say the least, they are equally consistent with a note of what Mr. Lee intended to propose to Mr. Craft, just as he put forward the Draft JVA with a view to keep the negotiation going. 101.The contents in the other two pages bearing the dates of 1 June 2000 (page 2944 of Bundle F1) and 26 June 2000 (page 2955 of Bundle F1) are neither here nor there. The notes recorded there are consistent with either a subcontract or a joint venture. There is also the page which bears the date “16/8” (16 August 2000) and which records a noon visit to the Defendant’s office. It was stated that Mr. Craft said that the Plaintiff would not be given the Steelwork and that Mr. Craft would be working with Havens Steel. The date is clearly wrong. On the evidence, both Mr. Lee and Mr. Craft stated that the meeting took place on 10 August 2000 and not 16 August 2000. Besides, no reference to any joint venture was made in this note. 102.Given the serious nature of the allegation made by the Defendant against Mr. Lee in this regard, I have very carefully considered the evidence and submissions concerning the Diary. At the end of the day, I do not think there are sufficient materials to enable this Court to come to an affirmative finding that Mr. Lee deliberately altered his Diary after the event so as to fortify his testimony. The Diary was disclosed by the Plaintiff at a rather early stage. If Mr. Lee or any other person within the Plaintiff deliberately made entries to his Diary so as to boost up his case, one would expect better attempts. Besides, one would expect Mr. Lee to put down the date of 20 May 2000 to the entries on page 2995 of Bundle F1 since at the time it was still Mr. Lee’s case that the Oral JVA was made on 20 May 2000 and not 26 May 2000. 103.It is true that Mr. Lee’s testimony in respect of his Diary is far from satisfactory or reliable. That does not necessarily mean Mr. Lee had altered his Diary as suggested by the Defendant. Rather, upon knowing that Mr. Craft was not in Hong Kong from 16 to 26 May 2000, Mr. Lee changed his testimony and tried to make use of his Diary to suit the Plaintiff’s changed case. As a result, there were unsatisfactory features in Mr. Lee’s testimony concerning the Diary. 104.In short, I do not find the entries in the Diary to be of any assistance to the Plaintiff’s case. They are not sufficient to show that an Oral JVA was reached between the parties. Alleged Preference over JVA to Subcontract 105.Mr. Lee asserted that right from the start, the Plaintiff was not interested to work as a subcontract of the Defendant. At all times, asserted Mr. Lee, the Plaintiff was only interested to work as the Defendant’s partner on a non-integrated joint venture basis. The reasons given by the Plaintiff can be summarized as follows. 106.First, the Plaintiff suggested that a non-integrated joint venture between two specialist contractors would mean less risk for each party as compared to subcontracting where the higher tier subcontractor would be responsible for the lower tier subcontractor. Whether or not this point is valid depends on the terms of the main contract. As in the present case, both the Plaintiff and the Defendant would remain jointly and severally liable under clause 2.8 of the CC202 Sub-Contract (quoted and discussed above) even if they work as joint venture partners. 107.Second, the Plaintiff suggested that a higher tier subcontractor would usually add certain percentage of allowance and mark-up on the price quoted by the lower tier subcontractor. Accordingly, the tender price of a non-integrated joint venture would be more competitive as compared to a tender that includes a subcontract price with a mark up. In principle, this contention must be correct. However, even if one applies this principle in the present case, one has to bear in mind that the Defendant would be deprived of the chance to earn the mark-up if it entered into a joint venture with the Plaintiff instead of subcontracting the Steelwork to either the Plaintiff or a third party as a subcontractor. In other words, each form of business arrangements has its advantage. It very much depended on what the parties wanted. It also thus means that a non-integrated joint venture is not necessarily more preferable or more inherent probable. 108.Third, the Plaintiff pointed out that the value of the Cladding Work was much less than the value of the Steelwork. From the point of view of the cladding contractor (i.e. the Defendant), it did not make much commercial sense to carry the entire responsibility of the Steelwork subcontractor without any mark-up or allowance on its price. From the Steelwork contractor’s point of view, it would make no sense for him to become a lower tier subcontractor as his portion of work has a much higher value. 109.Whether or not this observation is valid first of all depends on the terms of the main contract. As pointed out above, clause 2.8 of the CC202 Sub-Contract would make the Defendant jointly liable with the Plaintiff even if there were a joint venture between the Plaintiff and the Defendant. As to whether it would make commercial sense to a steelwork contractor to work as a subcontractor as opposed to a non-integrated joint venture partner, the decision is a matter of bargaining power and preference. If the steelwork contractor was interested in getting the work, he might have to agree to work as a subcontractor if the other party declined to enter into a joint venture. As a matter of fact, Havens Steel did act as the Defendant’s subcontractor. Besides, as discussed above, not only did Mr. Lee pick up a set of the tender documents when no Oral JVA was agreed, the Plaintiff did considerable work before the Oral JVA was allegedly concluded on 26 May 2000. In the circumstances, it would be difficult to suggest that its decision to act as the Defendant’s subcontractor is contrary to commercial sense. 110.Another point made by Mr. Lee during his examination-in-chief is the disadvantage of acting as a lower tier subcontractor. Mr. Lee suggested that he was concerned with the collection of money, since a lower tier subcontractor could only get money from the upper-tier contractor. In short, I understand Mr. Lee to mean that whether or not a subcontractor could get paid depends on the upper tier contractor. To some extent, I can see the validity of Mr. Lee’s point. However, I do not think this point can be pushed too far. In this case as in many contracts in the construction industry, the payment terms would be on pay-when-paid basis (see, for instance, the Plaintiff’s own letter dated 18 July 2000 to Rush Door). Besides, in construction contract of his scale, one would expect the usual interim payment mechanism and the involvement of professionals such as quantity surveyors and architects who would be there to supervise payments. Further, as pointed out above, Havens Steel did act as the Defendant’s subcontractor, which means the issue of payment could not be too much of a concern for a subcontractor in similar circumstances. 111.Taking all these into account, I do not find it inherently improbable that the Plaintiff would be willing to work as a subcontractor of the Defendant. This also refutes the Plaintiff’s submission that the parties must have agreed on the basis of their business relationship before they started to deal with each other and thus must have made the Oral JVA on 26 May 2000 before the Plaintiff would proceeded to work on the tender. As testified by Mr. Craft, I see nothing unusual for the Plaintiff to do what it did in the hope of getting a subcontract for the Steelwork from the Defendant. 112.The above discussion essentially looks at the matter from the Plaintiff’s perspectives. What would be the considerations if one looks at the matter from the Defendant’s angle? I do not think the conclusion will be different. 113.Mr. Craft has in his First Witness Statement explained the bases of relationship that he had considered, namely: (1) the basis of a management subcontract; (2) a main subcontract basis; and (3) a supply and erection contract basis. Mr. Craft has also explained in his evidence as to why he did not prefer to enter into a joint venture with the Plaintiff. Put shortly, the reasons were these. First, although Mr. Lee himself is very experienced in the industry, the Plaintiff had no previous experience in steelwork project. Second, he was concerned about the collapse of the Daido group and whether the Plaintiff was set up to avoid Daido’s responsibilities. 114.On the other hand, the Plaintiff sought to stress that Mr. Craft at the time had just had a split with his former business partner Mr. Grant Thompson. On the evidence, Mr. Grant Thompson is a structural steelwork man whereas Mr. Craft specializes in cladding work. In the circumstances and bearing in mind the engineering difficulties Mr. Craft perceived in the Steelwork as well as the importance to have local expertise, the Plaintiff suggested that Mr. Craft needed to enter into a joint venture with the Plaintiff so as to fill in the technical vacuum left by the departure of Mr. Grant Thompson. 115.While I can see some validity in the Plaintiff’s arguments, I do not think they are sufficient to render the Defendant’s case inherent improbable. True though that Mr. Lee is very experienced in steelwork, a project such as the one in question certainly required more than the experience of one person. In the past, when Mr. Craft agreed to enter into a joint venture with Mr. Lee’s company, Mr. Lee was with Daido Steel. The Plaintiff at the time was a completely new company. The fact that the Plaintiff is a subsidiary of SFK does not really help. It is true that SFK is a very substantial and well-known construction company in Hong Kong. However, at the time SFK did not appear to have much experience in performing steelwork. When requested, the only project reference provided by Mr. Lee to the Defendant was that of Daido. None in respect of SFK was provided. 116.The split with Mr. Grant Thompson is not entirely without significance. However, I do not think the split would necessarily rendered a joint venture more preferably from Mr. Craft’s point of view. In the absence of a party whom Mr. Craft felt comfortable in concluding a joint venture, a reliable specialist subcontractor such as the Plaintiff or Havens Steel was certainly one of the ways to fill up the technical gap left by Mr. Grant Thompson’s departure. Credibility of Factual Witnesses 117.Of the various witnesses called, I have no doubt about the reliability and credibility of both Mr. Nidelli and Mr. Stringfellow. I regard both of them as independent witnesses. As stated above, Mr. Nidelli worked for AMEC-HKC JV and not the Defendant. On the other hand, Mr. Stringfellow has since left the employment of the Defendant. I cannot see any reason why either of them would choose not to tell the truth and no reasons to the contrary have been advanced by the Plaintiff. I accept the entirety of their testimonies. Insofar as their testimonies conflicted with the testimonies of the Plaintiff’s witnesses, I reject the latter and accept the former. 118.Having observed Mr. Lee when he testified in the witness box and having tested his testimony against the parties’ conduct and contemporaneous documents, I find Mr. Lee an unreliable and incredible witness. On the other hand, I much prefer Mr. Craft’s evidence. Although his testimony may be subject to some minor criticisms, I on the whole find Mr. Craft a reliable and credible witness. He was unshaken despite the skillful cross-examination of Mr. Anthony Chan, S.C., Leading Counsel for the Plaintiff. Thus, insofar as the evidence of Mr. Craft differs to that of Mr. Lee, I prefer and accept the former and reject that of the latter. 119.As revealed above, Mr. Alan Chan and Mr. Lo Wai Chiu (Eric Lo) also gave evidence. The former testified for the Plaintiff, whereas the latter gave evidence for the Defendant. Their evidence is relatively speaking much more peripheral than the evidence of the other witnesses. Mr. Alan Chan did not have any direct dealing with Mr. Craft. Whatever he knew came from Mr. Lee. As I do not find Mr. Lee a reliable or credible witness, the testimony of Mr. Alan Chan becomes insignificant. Mr. Lo, on the other hand, was not at the meeting on 26 May 2000. He was involved in the Sub-Contract Work but his involvement, insofar as it related to the issues in dispute, was far less than that of Mr. Craft or Mr. Stringfellow. Insofar as may be necessary, I also accept Mr. Eric Lo’s evidence. JVA – Findings & Conclusion 120.For the reasons discussed above and bearing in mind that the burden of proof rests with the Plaintiff, I find that no Oral JVA was concluded by Mr. Lee and Mr. Craft whether at the meeting on 26 May 2000 as asserted by the Plaintiff or at all. Not only are the parties’ conduct after 26 May 2000 and the contemporaneous documents wholly inconsistent with the existence of the Oral JVA contended by the Plaintiff, I do not find Mr. Lee a reliable or credible witness and thus reject his suggestion of a joint venture between the Plaintiff and the Defendant. 121.As regards the Implied JVA, the applicable test is the one set out in Baird Textiles v Marks & Spencer [2002] 1 All ER (Comm) 737, per Morritt V.C. at pp. 743G-749A, where the learned judge considered other relevant authorities including Blackpool and Fylde Aero Club Ltd. v Blackpool BC [1990] 1 WLR 1195 (which dealt with the implication of a contract from a request for tenders and submission in response). The evidence and considerations discussed above in respect of the parties’ contentions on the Oral JVA are of equal relevance to the debate over the Implied JVA. In particular, if the parties’ conduct is inconsistent with the existence of an Oral JVA, it is difficult to see how an Implied JVA could have arisen. Having reviewed the evidence discussed above, I do not think it can be said that the parties’ conduct is more consistent with the existence of a JVA than with its absence. Instead, the parties’ conduct is more consistent with the Defendant’s contention that at all material times it only treated the Plaintiff as a potential subcontractor for the Steelwork. Moreover, the implication of the alleged JVA is not necessary to give business reality to the commercial relationship between the Plaintiff and the Defendant. In the circumstances, I find that there was no Implied JVA. 122.I have in the above discussion mentioned the Draft JVA and the fact that there were issues that had not been discussed, let alone agreed, between the parties. On that basis, Mr. Manzoni submitted that an agreement simply had not come into being and that this is not a case where the Court can step in and imply terms. Mr. Anthony Chan, S.C. submitted that such an argument of uncertainty has not been pleaded and thus should not be allowed. I do not think this is a case where the parties’ agreement is void for uncertainty in the traditional sense. For the reasons given, I find that there was simply no Oral JVA or Implied JVA. As discussed above, the contents of the Draft JVA and the circumstances against which it was produced by the Plaintiff to the Defendant go to show that the parties had not agreed to form a joint venture. 123.Since the Defendant had never agreed to enter into any joint venture arrangement with the Plaintiff, it was at liberty to award a subcontract in respect of the Steelwork to Havens Steel. I thus find that there was neither breach nor repudiation of any contract on the part of the Defendant and that the Plaintiff’s case on JVA must be and is hereby dismissed. Wasted Costs & Expenses 124.As noted earlier, the Plaintiff claimed that it had incurred wasted costs and expenses in preparing the tender and/or the Sub-Contract Work as a result of the Defendant’s breach or repudiation of the JVA. Alternatively, it is claimed that the Plaintiff is entitled in law to recover such wasted costs and expenses on the basis of quantum meruit and/or quasi-contract and/or restitution. Originally, there was a plea of unjust enrichment but this plea was abandoned when the Re-Re-Amended Statement of Claim was filed on 8 November 2006. 125.The amount claimed is HK$26,095.60. Particulars and breakdown of this figure are set out under paragraph 9 of and Appendix 1 to the Re-Re-Amended Statement of Claim. The Plaintiff accepts that if the Court finds in favour of the Plaintiff on the JVA, such costs and expenses would have been absorbed by the Plaintiff as part of the costs of the JVA. Should this Court hold against the Plaintiff on the JVA, the Plaintiff contended that such costs and expenses should be paid by the Defendant. 126.In Hudson’s Building and Engineering Contracts (11th edn.), Vol. I, the law in this area is expounded as follows:
See also: Keating on Construction Contracts, 8th edn., para. 2-003 (pp. 20-21); Moffatt v Dickson (1853) 13 C.B. 543; William Lacey (Hounslow) Ltd. v Davis [1957] 1 W.L.R. 932. 127.As regards a claim on quantum meruit, the learned author of Hudson’s Building and Engineering Contracts (11th edn.), Vol. I, explained as follows:
128.Since the Plaintiff is a specialist contractor, it may also be pertinent to note the following remark in Cheng, Wong & Soo, Construction Law and Practice in Hong Kong (S&M) (2004) (para. 11.25, at p. 249):
129.For the present purpose, the relevant principles can be summarized as follows:
130.Applying these principles here, the first question is whether the Plaintiff had done more than what a prospective subcontractor in similar circumstances would normally do. The Plaintiff contended that this question should be answered in the affirmative. Having considered the evidence and in particular the matters set out in Appendix 1 to the Re-Re-Amended Statement of Claim, I do not think the Plaintiff has successfully established that it had done more than a prospective subcontractor would have done in the circumstances. The work done by the Plaintiff was within the reasonable ambit of what would be expected from a prospective sub-contractor in the circumstances. Indeed, the Plaintiff expected and requested similar information (and thus similar work) from its own subcontractor Rush Door. See, for instance, the Plaintiff’s letter to Rush Door dated 18 July 2000. 131.In the circumstances, the general principle stated above apply. There cannot be any claim on the basis of an implied promise to pay. The evidence, as discussed above, points to the contrary direction. Nor can there be any claim on quasi-contract quantum meruit. As noted above, the plea of unjust enrichment was abandoned when the Re-Re-Amended Statement of Claim was filed. In any event, no case of unjust enrichment can be made out on the evidence. Hence, I find that the Plaintiff cannot make out its claim for wasted costs and expenses, whether as pleaded in paragraph 9 or 10 of the Re-Re-Amended Statement of Claim, and the claim is dismissed. Loss of Profit 132.Since I find that there was neither the Oral JVA nor the Implied JVA, strictly speaking it is not necessary to deal with the Plaintiff’s claim for loss of profit. Nevertheless, I shall very briefly set out my findings in this regard in case this matter goes further and it becomes necessary to deal with this part of the case. 133.The Plaintiff’s claim is purely contractual. On the basis that the Defendant had breached or repudiated the JVA, it has loss the revenue or profit it would otherwise have made. The Defendant denied this claim. The Defendant asserted that the Steelwork in question was not a “run-of-the-mill” project as it involved difficult engineering issues such as fabrication, transportation and erection. On this basis, the Defendant averred that the costs involved would exceed the contract sum payable to the Plaintiff and hence the Plaintiff would not have made any profit even if the Steelwork was given to the Plaintiff pursuant to the JVA. Further, the Defendant sought to rely on the actual costs of and difficulties faced by Havens Steel, who performed the Steelwork pursuant to the subcontract awarded to it by the Defendant. In support of its contention, the Defendant called Mr. John J. McNaught (who acted in place of Mr. Denis Levett) to testify as its expert. 134.The Plaintiff accepted that the Steelwork might not be a “run-of-the-mill” project. However, given its experience and expertise in steelwork, the Plaintiff asserted that it should have no real difficulty in completing the work. It claimed that its intended method of construction was more superior to that of Havens Steel and that it would be in a position to make a profit if given the Steelwork. As regards expert evidence, the Plaintiff has called Dr. Sammy Y.N. Chan and Mr. John Bernard Molloy respectively on engineering issues and costs issues. In addition, an expert report prepared by Mr. George Nip (who was the predecessor of Mr. Molloy in this case) was included amongst the evidence. 135.I should add that the Plaintiff also sought to attack the impartiality of Mr. McNaught. Although I have taken those submissions into account when considering which expert’s evidence should be accepted, I do not think it is necessary to go that far. Instead, I believe the following should be sufficient to dispose of the disputes over quantum. 136.Having heard the experts and considered their reports, I accept the evidence of Dr. Sammy Chan on the engineering issues raised by the Defendant. Dr. Sammy Chan’s experience and expertise in respect of the engineering issues is evidently more relevant to those of Mr. McNaught. His testimony was unshaken despite the skillful cross-examination by Mr. Manzoni. I accept and find that although the Steelwork might not be an ordinary “run-of-the-mill” project, the Plaintiff should be in a position to handle the matter. I also accept and find that the Plaintiff, if it were to perform the Steelwork, would have been able to save costs by adopting the “just-in-time” concept. Besides, the evidence reviewed that the Plaintiff at all material times intended to sub-contract the Steelwork to Rush Door on a back-to-back lump sum basis. Thus, any risks involved in the performing the Steelwork would likely be transferred to Rush Door. 137.The next question is how should the loss of profit be assessed. Putting aside the debate over the relevance of the actual costs incurred by Havens Steel, Mr. Molloy and Mr. McNaught basically put forward three different bases of assessment. The first two bases were put forward by Mr. Molloy and the third one by Mr. McNaught. 138.The first assessment was made on the basis that the Plaintiff would sub-contract the Steelwork to Rush Door (“Molloy’s Option One Valuation”). Thus, reference was made to the quotations submitted by Rush Door, with the necessary adjustments. Under this assessment, the loss of profit is the difference between: (1) the contract sum the Plaintiff would have received for the Steelwork; and (2) the amount the Plaintiff would have to pay to Rush Door and the Plaintiff’s own site and head office overheads. 139.The second assessment was made on the basis that the Plaintiff would sub-contract the Steelwork to a contractor other than Rush Door (basically a hypothetical but reasonable contractor who would charge at fair market rates) (“Molloy’s Option Two Valuation”). Under this approach, the assessment was by reference to the rates which Mr. Molloy opined as fair market rates for a sub-sub-contractor carrying out works of this nature at the relevant time. Mr. Molloy estimated the fair market rates by reference to comparable figures (i.e. actual market rates for works of a similar nature other than the actual costs of Havens Steel). 140.The third basis of assessment, put forward by Mr. McNaught, is similar to that of Molloy’s Option Two Valuation. The key difference is the way in which Mr. McNaught assessed the fair market price. In short, Mr. McNaught built up his rates from first principles (i.e. on the basis of the labour, plant and materials, together with allowances for profit and overheads). 141.The Plaintiff’s primary case is that the Molloy Option One Valuation is the proper basis of assessment. It also contended that the actual costs of Havens Steel is irrelevant for the purpose of assessing the Plaintiff’s loss of profit. 142.Having considered the reports by Mr. Molloy and Mr. McNaught and their testimonies, I prefer the evidence of Mr. Molloy to that of Mr. McNaught (save for one minor mistake concerning the contract price payable to the Plaintiff which was pointed out by Mr. Manzoni and which will be addressed below). 143.First, I do not think the actual costs of Havens Steel is of any real assistance in assessing the loss of profit claim by the Plaintiff. The methods and approaches adopted by Havens Steel were different to those intended to be used by the Plaintiff. Amongst others, the “just-in-time” concept intended to be employed by the Plaintiff would make a significant difference in costs. 144.Second, I find that the most appropriate basis of assessment is Molloy’s Option One Valuation. The evidence clearly shows that the Plaintiff at all material times intended to subcontract the Steelwork to Rush Door on a back-to-back basis. Rush Door, on the other hand, had expressed interest in doing the work. Besides, the Plaintiff had a long working relationship with Rush Door. In the circumstances, Molloy’s Option One Valuation is the basis of assessment which is most likely to reflect what would have happened had the Steelwork been given to the Plaintiff pursuant to the JVA as contended by the Plaintiff. 145.There has been some debate over Mr. Molloy’s assessment and the Plaintiff’s case on its head office overheads, which was assessed at 2% by reference to a written agreement between Sun Fook Kong Construction Ltd. (part of the SFK group) dated 9 December 1999 whereby Sun Fook Kong Construction Ltd. agreed to provide head office overheads (i.e. office space, head office personnel and head office equipment) at an agreed fee of 2% of the Plaintiff’s contract sums. Having considered both sides’ expert evidence and submissions, I accept Mr. Anthony Chan S.C.’s argument in this regard. As the Plaintiff managed to fix its head office overheads at 2% of its contract sum, I see no valid basis not to adopt this figure. 146.Third, I find Mr. McNaught’s assessment rather inappropriate. Even if one does not go for Molloy’s Option One Valuation, I cannot see why one should built up the rates from first principles and not by reference to actual market rates of comparable works at the relevant time (as suggested in Molloy’s Option Two Valuation). 147.The figure as assessed by Mr. Molloy pursuant to Molloy’s Option One Valuation is HK$3,205,385.94 (see paragraph 9 of the Re-Re-Amended Statement of Claim and paragraph 5.11 of Mr. Molloy’s report). As pointed out by Mr. Manzoni in paragraph 153 of his Closing Submissions for the Defendant, there should be a reduction of HK$27,624.91 because the sub-contract price should be HK$25,800,000 and not HK$25,827,624.91 (as adopted by Mr. Molloy). Thus, had the Plaintiff succeeded in establishing liability against the Defendant, this Court would have assessed the Plaintiff’s loss of profit claim at HK$3,177,761.03 (i.e. HK$3,205,385.94 less HK$27,624.91). However, since I have rejected the Plaintiff’s case on JVA, I will not make any award in this regard. Costs of the Adjournment 148.As pointed out above, the Plaintiff applied for an adjournment at the beginning of this trial so as to consider the impact brought about by the matters revealed in Mr. Craft’s Third Supplementary Witness Statement (i.e. the fact that Mr. Craft was not in Hong Kong from 16 to 26 May 2000). That adjournment was granted and the trial only started on the following day. The costs of this one-day adjournment was reserved until after trial as I wanted to have an overall view of the matter including to what extent did the new evidence contained in Mr. Craft’s Third Supplementary Witness Statement affect the parties’ conduct of the trial. 149.Having considered the matter and in exercise of my discretion, I now order that the costs of and occasioned by the one-day adjournment be paid by the Defendant to the Plaintiff to be taxed if not agreed. 150.Although a mistake was made by the Plaintiff when it started its case by alleging that a meeting took place between Mr. Lee and Mr. Craft on 20 May 2000, the fact that Mr. Craft was not in Hong Kong from 16 to 20 May 2000 is something well within the knowledge of Mr. Craft. Mr. Craft should be the first one to come forward to say he was not in Hong Kong during that relevant period. He did not do so until very close to the commencement of the trial. As this occasioned the need to adjourn the trial for one day so as to allow the Plaintiff to consider the implication (which request for adjournment is perfectly reasonable in the circumstances), the Defendant should bear the consequence and thus should pay the costs involved. 151.Mr. Manzoni stressed that the Defendant was only discharging its continuous obligation to make discovery. The Defendant was no doubt under a continuous obligation to make discovery. However, the real reason for the adjournment is the delay in revealing the fact that Mr. Craft was not in Hong Kong from 16 to 20 May 2000 and not the discharge of the Defendant’s continuous obligation to disclose Mr. Craft’s passport or immigration record. Had Mr. Craft revealed his absence from Hong Kong well before the commencement of the trial, there would not be the need for the Plaintiff to ask for an adjournment. In the circumstances, it is only fair that the costs of and occasioned by the one-day adjournment be paid by the Defendant. 152.Last but not least, it remains for me to express my gratitude to both side’s Counsel for their assistance rendered throughout the trial.
Mr Anthony Chan, SC, instructed by Messrs Li & Partners, for the Plaintiff Mr Charles Manzoni, instructed by Tanner De Witt, for the Defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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Further hearings and rulings under HCCT 122/2000