Chan Shun Kei t/a Chan Shun Kei Construction Works v. Hong Kong Construction (Hong Kong) Ltd

HCCT 2/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 2 OF 2011

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J U D G M E N T

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1.This litigation stems from the road and drainage works (R&D works) done by one of the sub-contractors (the plaintiff) on the Tolo Highway road widening project (HY/98/02) approximately 12 to 13 years ago. The plaintiff first came on site in 1999 but the issues in this dispute concern, largely, 2001 to 2002. The plaintiff’s sub-contract was terminated in June 2002. The entire project was completed in 2004.

2.Although the plaintiff has had the advantage of an unconditional legal aid certificate since 2002 the matter has proceeded at a disappointingly slow pace.  Over that period the pleadings, written evidence and other paper exhibits have grown to 137 arch files.  It was apparent at the outset of the trial, and agreed, that the 10 days (plus two extra reserved) would be insufficient to deal with all matters of liability and quantum.  The quantum experts had been able to agree on very little and their combined reports ran to thousands of pages.  A direction was therefore made, by consent, that the court time allotted would be spent on issues of liability only.

3.There are a number of liability issues.  In the course of the trial, pursuant to a court direction, counsel agreed a list of issues for the court’s determination.  I have indicated that a written decision on all liability issues should be handed down by 7 February 2014.  Thereafter I have given the parties 14 days to inform the court whether or not a separate hearing on outstanding quantum disputes will be necessary.  If so, it should be listed during March 2014.  Both parties have expressed a hope that once liability issues have been determined the need for a quantum hearing should be greatly reduced, if not extinguished.

4.Before setting out a short background of this case I set out the issues on liability agreed by counsel (Mr Yeung Ming Tai and Mr Yan Kwok Wing for the plaintiff and Mr Osmond Lam and Miss Emerald Shek for HKC):

(1) What were the terms of the oral agreement made in or around June/July 2001?

(i) Scope of the works to be completed by the plaintiff.

(ii) Applicable rates.

(iii) Other express terms.

(iv) Implied terms.

(v) How do the above affect quantum?

(2) What were the terms of the agreement made in around February 2002 (if any) (the “February Agreement”)?

(i) How does the February Agreement affect quantum?

(3) What were the terms of the Agreement made in March 2002 (if any) (the “March Agreement”)?

(i) How does the March Agreement affect quantum?

(4) What was the amount of work completed by the plaintiff? (Whether the “Blue & Yellow drawings” or the plaintiff’s 2003 final account shall form the basis of measuring the plaintiff’s work done?)

(i) How does this impact on quantum?

(5) What were the breaches of the agreement(s) (if any)?

(6) Was the termination of the contract rightful or wrongful?

(i) Is the plaintiff entitled to claim loss of profit?

(ii) How does the termination affect the quantum?

(7) Was the plaintiff liable for the contra‑charges claimed against him?

(8) Was the plaintiff entitled to its claim in relation to geotextile and armour rock?

BACKGROUND

5.The matters leading up to the June/July 2001 oral agreement outlined under this heading are largely undisputed.  Any matters here referred to which were disputed in the evidence may, hereafter, be regarded as a finding of fact which, where necessary, is dealt with more fully under later headings.

6.In 1999 the defendant, Hong Kong Construction (HK) Ltd (“HKC”) was engaged by the government as the main contractor in HY/98/02, a project to widen a stretch of the Tolo Highway.

7.HKC then engaged Shanghai Construction Group (HK) Ltd (“SCG”) as its subcontractor for road and drainage works.  The contract price was $56.22 million.  Thereafter, these works were again sub-contracted three more times, each at a lower price.  Firstly to “Handy” at a discount of 3.95%, then Handy to “Sheung Moon” at a discount of 7.5% and then finally to the plaintiff for $44 million (which represents a discount of nearly 22% from the original sub-contract price).  Thus, from early on in the works to plaintiff was the 4^th tier sub‑contractor actually doing the work, whilst SCG, Handy and Sheung Moon merely collected their management fees.  The original contract between HKC and SCG was SC/041, the plaintiff carried out the works under that contract for the significantly reduced price.

8.Between 2000 and June 2001 all three intermediate sub‑contractors dropped out of the project (for reasons which do not concern this case).  The plaintiff continued to carry out the road and drainage works after 30 June 2001 and continued to do so until it was terminated by letter dated 13 June 2002.  Issue No 1 in this trial is to determine the terms, if any, of the agreement made between the parties at that time.  It was an oral agreement.  HKC, in early 2002 when the plaintiff had been its 1^st tier sub‑contractor for over six months, submitted a written sub‑contract for the plaintiff’s signature believing it to represent the terms of their agreement.  However, the plaintiff declined to sign.  In outline it is the plaintiff’s case that the agreed terms, made in June 2001, were that:

1) HKC would engage the plaintiff for all the remaining road and drainage works unfinished by SCG;

2) HKC would complete its final account under the sub‑contract SC/041 with SCG within two to three months so that the plaintiff could receive its payments;

3) HKC should prepare a new sub-contract within a reasonable time with agreed adjusted rates;

4) interim payments would be made on the basis of the Bill of Quantities rates of the sub-contract SC/041;

5) the plaintiff was at liberty to submit quotations in respect of those works where no rates had been provided in the sub‑contract SC/041; and

6) pending further agreement to the contrary, the existing terms and rates under the sub-contract SC/041 between HKC and SCG should apply to the direct sub‑contract for interim payments purposes.  (emphasis added)

9.The plaintiff also submits that the agreement contained an implied term that if no agreement on rates was agreed, then reasonable rates should apply.

10.HKC’s version of the agreed express oral terms differs considerably.  They say it was agreed that:

1) the plaintiff should carry out works in accordance with the HKC’s instructions to be given from time to time;

2) the plaintiff should charge for the works done in accordance with or reference to the rates provided for the same works or works of the same nature as specified in the Bill of Quantities under the sub‑contract SC/041 with a deduction of 3.95%;

3) subject to further agreement, other terms under the sub‑contract SC /041 shall apply; and

4) the plaintiff should proceed with works ordered by HKC with due diligence and in accordance with the approved programme and without delay.

11.HKC, in the alternative, further argues for implied terms that the plaintiff should proceed with the work diligently and should provide sufficient resources and pay their employees’ wages.

12.The plaintiff continued with the works.  HKC contends that many problems arose with their work.  In the latter part of 2001 HKC wrote many letters of complaint to the plaintiff.  The main problems were the plaintiff’s failure to have proper resources on site and their failure to pay the workers’ wages.  HKC says it brought in other contractors and also engaged its own workers to carry out some of the works.  The parties disagree about when other sub‑contractors were engaged and for what purpose.

13.HKC also contends that the plaintiff’s cash flow problems were at the root of the difficulties.  It advanced money to the plaintiff in an effort to help but the problem persisted until there was a strike on site by the plaintiff’s workers at Chinese New Year on 8 February 2002.  The strike ended as a result of HKC’s agreement to pay wages to the plaintiff’s workers up to a total of $500,000.

14.The plaintiff’s case is that this situation led to another oral agreement, “the February Agreement”, the alleged terms of which is Issue No 2.  The plaintiff’s claim is that it was agreed that:

1) with effect from 1 March 2002 the road and drainage works completed by the plaintiff should be paid on a dayworks basis (plus overheads and profits);

2) as an interim measure, HKC should make direct payment to the plaintiff’s workers and plant suppliers and the payment thereby made should be deducted from the plaintiff’s entitlement as an advancement under the June/July oral agreement. HKC should make (and did make such payments) direct payment to plaintiff’s workers and plant suppliers; and

3) in the event that the dayworks paid were greater than those calculated using agreed rates in the formal sub‑contract, the plaintiff was not required to pay back the difference to HKC.

15.HKC submits that there was no oral “February Agreement”.  They accept that some daywork rates were paid but only at specific locations and for specific works which had been specifically instructed in writing.  It is agreed that HKC agreed to pay 80% of the plaintiff’s workers (as a loan).  Unfortunately the plaintiff was unable to pay the remaining 20%.

16.Issue No 3 concerns a third alleged oral agreement made on March 2002, “the March Agreement”. This also concerns an agreement to pay on a daywork basis, but at a particular location, namely “WA1”.  The plaintiff further claims that if extra labour and plant were required then overtime daywork rates would be paid as “extra items”.  HKC denies this agreement.

17.Issues Nos 5 and 6 concern the termination of the contract.  Were either side in breach (No 5) and was the termination right or wrong (No 6)?

18.In terms of quantum the most significant issue is Issue No 4.  In outline Issue No 4 arises as follows.  In October 2002, after the plaintiff had left the site Mr Law Sui Man (“Mr Law”), the plaintiff’s main witness, whose witness statement ran to 168 pages (not including exhibits) requested certain drawings from HKC.  At the time he was in the process of preparing the plaintiff’s final account application.

19.It is the plaintiff’s case that the drawings supplied showed the entire scope of the plaintiff’s completed works. HKC on the other hand submit that the correspondence demonstrates that the drawings merely showed the areas in which the plaintiff had worked.  The drawings are the so‑called “Blue & Yellow drawings”.  Areas marked in yellow, according to the plaintiff, are their completed works, areas in blue refer to works done before SCG terminated their sub‑contract in June 2001.

20.In either event, it is agreed that Mr Law did not use these drawings in his final account.  The reasons he did not will be discussed later.  Mr Law completed his final account in mid 2003, about one year after the plaintiff had left the site.  HKC did not accept this final account.  By this time the plaintiff had already been granted legal aid.  The first statement of claim followed in 2004, based on the plaintiff’s 2003 final account and not on the Blue & Yellow drawings. The high water mark of the plaintiff’s claim at that time was in the region of $10 million.  However, in 2011, seven years later, after full and extensive discovery the Blue & Yellow drawings were used to evaluate the plaintiff’s claim and the claim was amended to a sum in the region of $40 million.  That sum has since been reduced to about $28 million.

21.HKC simply submits that the Blue & Yellow drawings should be ignored.  They do not show what the plaintiff claims. What they do show is vague and unclear, they were first relied on nine years after the termination of the contract and a 300% increase in the plaintiff’s final claim cannot be right.  The basis upon which Mr Law submitted his final account in mid 2003 was correct and logical although the figures are not agreed.

22.HKC’s quantum expert (neither expert gave evidence in the liability only trial) ignored the Blue & Yellow drawings, whereas the plaintiff’s quantum expert only used the Blue & Yellow drawings.  My decision to either include them or exclude them (there is no half way) will result in one of the two experts having to re‑do his calculations on a different basis.

23.In Issue No 7 I shall decide which contra‑charges (there are 39 in contention in all) can be deducted by HKC.  The decision on some, but not all, depends on my findings in earlier issues.  Issue No 8 is a substantial claim (but not an agreed sum) for extra charges incurred in a particular area of rock excavation.  HKC say they were performed wrongly, using incorrect machinery and they should not be liable.

24.I will deal with these issues below and give a determination for each one.  Before doing so however, and in order to enlarge the background picture, there are two separate items which merit preliminary observations and findings (paragraphs 26 to 34 below).

25.I propose also to leave two further headings to the conclusion of this judgment.  The last will be matters of law.  This has largely been a fact finding exercise but in some instances legal considerations have been relied on by one party or the other.  I will refer to them in conclusion.  Also, I will then state my evaluation of the reliability of the witnesses who were called to give evidence.  The witnesses were as follows: 

(1)   For the plaintiff:

(a)   Mr Law Siu Man (“Mr Law”), the plaintiff’s project manager and right-hand man.  Unlike his boss, Mr Chan Shun Kei, he was able to read, write and speak English.  He was responsible for virtually all the correspondence emanating from the plaintiff.

(b)   Mr Chan Shun Kei (“Mr Chan”), the plaintiff and sole proprietor of his construction company.  His company was not engaged in any other contracts after this one. It ceased business in 2007.  At the material time it had been in business for about 20 years.

(2)   For HKC:

(a)   Mr Mark Derisley (“Mr Derisley”) was the project manager from 1999 to 2004.

(b)   Mr Man Foo Keung (“Mr Man”) was the project director until he resigned in October 2001.

(c)   Mr Tang Shing Chi (“Mr Tang”) was the construction manager and, as such, was on site most of the time.

(d)   Mr Eddie Chan, an accountant employed by HKC whose evidence in the “liability only” trial was in relation to the contra‑charges issue only.

TWO SPECIFIC BACKGROUND/PRELIMINARY MATTERS

1. A comparison between the financial difficulties faced by both parties

26.It is a key component of HKC’s case that the plaintiff was in continuous financial difficulty and that such difficulties were the result of either their own mismanagement or other reasons for which HKC cannot be held responsible.  The plaintiff acknowledges that it had financial problems but blames them on HKC and also points to HKC’s own financial issues as part of the problem.

27.Mr Yeung for the plaintiff referred to some minutes of meetings and internal memos on this subject.  An example is an internal memo from Mr Derisley to HKC’s CEO dated 7 April 2001 expressing considerable concern about SCG’s (then the 1^st tier sub‑contractor) lack of progress.  It included this sentence “As a result of our Company’s financial crisis and shortage of operating capital the progress of all works, including the Tolo Highway, were affected”.  It later said:

“Since the beginning of this year, the financial position of our Company has begun to improve, sub-contractors and materials suppliers have regained their confidence, and the progress of the works has kept improving. However, SCG has continued to perform very poorly, which has had an extremely bad impact on the overall progress of the works. Our Company is very concerned about such situation.”

28.HKC is a major construction company.  It had financial problems in 2000.  They improved.  The plaintiff’s problems however were of a different nature.  He was a small contractor who had taken on the role as the sub‑contractor on site, actually doing the work, for a price of $44 million in 1999 as against SCG’s agreed price of $56 million.  When he took the job on as 1^st tier sub‑contractor in June 2001 he started off with a serious cash flow problem and, generally speaking, it did not improve.  In July 2001 the plaintiff asked HKC for an advance of $2 million.  At the end of October 2001 he asked for a loan of $4.5 million (primarily for wages and machine rental).  On 10 January 2002 an additional $1.2 million was requested.  After this was paid a further $1.5 million was sought.  After the Chinese New Year strike HKC paid $500,000 wages due to the workers.  Later HKC agreed to pay 80% of the wages and all plant and machinery costs.  They also paid the sums due following a Labour Tribunal hearing.  HKC’s financial problems of 2000 did not prevent them giving the plaintiff significant financial assistance in order to keep the project going.  Neither did it affect the timing of their payment of each and every interim payment application.  They were all paid in time and for substantial sums properly certified.  It remains to be seen whether there was any under payment.  It is invariably the case that amounts certified are less than amounts applied for.  In this case, because of the loans, the reductions in the certified amounts had, from time to time, to be greater.  There seems to be little criticism of the professionalism with which the certification was done, albeit many of the amounts remain in dispute.

29.In short, I find the plaintiff’s financial circumstances to be highly relevant to this case whereas HKC’s “financial crisis” of 2000 and before does not appear to be so.

2. The $2 million “preliminary item” and the $2.12 million “rainy days claim”

30.HKC had agreed to pay SCG a sum of $2 million as an “additional preliminary item” in their final account of SC/041.  Also, there was an agreement dated 5 February 2001 between HKC and SCG for a further additional payment of $2.12 million for “idling and other overhead costs”.  For some reason this became known as the “rainy days claim” (which seems to be, in part, a misnomer).  The point made by the plaintiff on the $2.12 million is that it had been agreed before they became the 1^st tier sub‑contractor but they did not reap any benefit therefrom, albeit they were the workers on site at all material times.  They submit also that although there is evidence of the agreement there is no evidence of payment or the filtering of the payments down the contractual chain.  This, they submit, contributed to the situation where they started as 1^st tier sub‑contractor, financially, on the back foot.

31.The complaint about the $2 million “additional preliminaries” is along the same lines.

32.HKC’s answers are straightforward.  In respect of the $2 million they submit that as the plaintiff merely continued to work on site when they took over as the 1^st tier sub‑contractor in June 2001 the cost of additional preliminaries would be minimal.  Further, both amounts were agreed between HKC and SCG when the plaintiff was the 4^th tier sub‑contractor.  Once the agreement was made with SCG, HKC have no control of or responsibility for further distribution of its money.  At the time the plaintiff’s contract was with Handy.  HKC could not and should not interfere with disputes between a sub‑sub‑contractor and a sub‑sub‑sub‑contractor.  Mr Man, in evidence, confirmed that Handy had sued SCG and the case was settled in August 2002 for $7.5 million.  The claim included claims for the $2 million and $2.12 million.  Also the plaintiff had sued Handy and although it took a woefully long time to settle (2011) the settlement sum of $6.85 million again included the $2 million “preliminaries” claim and the $2.12 million “idling costs” claim.

33.These sub‑issues are tied to the plaintiff’s complaint that HKC did not keep its promise (an alleged oral contractual term) to settle the final account with SCG within two to three months of the plaintiff taking over.  Had they done so the plaintiff would have received their share of those agreed sums at an early stage.  The promise was denied by HKC (with which I deal later) on the basis that they would not have made a promise which they, very likely, would not have been able to keep.

34.In short, I find that, due to the acceptable and plausible responses from HKC on these matters, neither issues can add any meaningful weight to the plaintiff’s case on the main issues, to which I now turn.

ISSUE NO 1

The terms of the June/July 2001 oral agreement

(a) The scope of the works

35.The plaintiff claims it was engaged from 1 July 2001 onwards to perform the whole of the road and drainage works to the conclusion of the project.  HKC avers that the engagement was on a piecemeal basis.  Although it was hoped that the plaintiff would prove himself to be sufficiently competent to complete the whole of the works HKC wanted to assess their work on a piecemeal basis.  They were a small contractor promoted from 1^st tier to 4^th tier overnight with uncertain financial resources and HKC in such circumstances could not possibly guarantee 100% of the remaining works by word of mouth, there and then.  HKC say that the plaintiff has promoted a hope into an intention into an agreement, without justification.

36.In support of the plaintiff’s contention Mr Yeung notes, inter alia, matters such as the following:

(1)   Mr Derisley agreed that it was logical to keep the plaintiff on site as they had been doing the work all along.  Seeking new quotations from new sub‑contractors would be time consuming and expensive.

(2)   There is no documentary evidence specifying particular “piecemeal” jobs with specific drawings, site instructions, etc.  On the contrary, the drawings given to the plaintiff showed the entire scope of the works.  In November 2001 they were given the revised Master Programme Revision No 9 and were told that the dates thereon must be achieved within time.

(3)   Apart from two other sub‑contractors, Kenon and Tapbo who were already on site in July 2001 (and whose works in road and drainage matters was minor) HKC did not invite quotes from any other sub‑contractors for the remainder of 2001.  (It is conceded that this changed in 2002 particularly after the strike.)

(4)   Similarly, HKC only first engaged its own direct labour from December 2001.

37.Thus, it is submitted, the pattern from July 2001 to the end of the year is consistent with the plaintiff having been engaged as the sub‑contractor to perform all the works.  Any change in pattern thereafter would be attributable to HKC’s change of mind about whether the entire works would be completed by one contractor within time.

38.HKC agrees with the reasons given for keeping the plaintiff on, namely, continuity and cost and time factors.  However, Mr Lam submits that merely keeping someone on, albeit for good reasons, is a far cry from entrusting them with 100% of all future works.  Such an agreement, he submits, would be reckless and contrary to commercial commonsense.  The logical and realistic approach, as adopted by HKC at the time was to put the plaintiff on trial.  The best outcome would have been their success in completing all the works satisfactorily but that did not happen because they did not pass the test.

39.It is natural also to assume that the plaintiff was ready and willing to step into the shoes of SCG and take on the position of 1^st tier sub‑contractor for two reasons.  Firstly, payments from the main contractor would not have to filter down through three sub‑contractors above them and, secondly, they had originally taken on the job on a tight budget of $44 million.  In the new role the budget would either be $56 million or $56 million minus 3.95% (the next issue), an increase of, approximately, either 17% or 21%.

40.In coming to a decision that HKC’S version of this part of agreement must be right, I have considered a number of the contemporaneous documents, which, in my judgment, lend support to the force of HKC’s argument.  I shall refer to some of them below but make this preliminary observation which is applicable in relation to my decision on all the issues in this trial.  It will be noted that only a small number of the many many documents referred to by both sides in the course of the trial appear in this judgment.  It would be quite impractical to refer to them all, or even a large number.  I deem it sufficient to refer to a selection which illustrates the reasons for the court’s findings, having considered the whole of the evidence and all the relevant documents relied on by both sides.

41.Mr Man’s oral testimony on the matter was emphatic, unshaken and entirely believable.  His stated reasons were those advanced by Mr Lam.  He was not confident that the plaintiff had the capacity or resources to take on all the works, he would assess them as the works proceeded and, as with Mr Derisley, there was a hope that they would perform adequately, but only time would tell.  What actually happened was that the two other sub‑contractors on site at the time, Kenon and Tapbo, did some road and drainage works, HKC direct labour was later engaged, letters of complaint to the plaintiff commenced in October 2001, more contractors arrived in 2002 and HKC saw the need to respond to the plaintiff’s request for financial support.  Some documents which support this position are as follows.

42.In October 2001 the plaintiff was informed by letter that their performance was being monitored and that “Your performance will be reviewed shortly and we may consider reducing your amount of works.”

43.In August 2001 Mr Man had written to his own Financial Director saying “… It is therefore determined that Chan Shun Kei will continue to be sub‑contractor for part of the works.”

44.In December 2001 the plaintiff was told that “parts of the gully works” would be carried out by HKC and that HKC labour would be engaged on the northbound road and drainage works.

45.In January 2002 they were told that a decision had yet to be made whether part of the southbound works would be given to the plaintiff.

(b) The applicable rates for the plaintiff’s work

46.This sub‑issue can be stated simply.  Was the plaintiff taken on on the basis that they would be paid the same rates that SCG had under SC0/41 or (HKC’s case) was it SCG rates less 3.95%?  The “3.95%” comes from the fact that SCG’s original sub‑contractor, Sheung Moon, had been engaged by SCG on this basis.  Although a considerable amount of time at trial was spent on the issue the consequent impact on quantum, according to HKC’s figures, was a relatively small sum of about $300,000.

47.The plaintiff’s position was consistently that it was agreed that SCG rates would be adopted without any discount, for interim payments only.  In due course adjusted rates could be agreed to be contained in a written contract.  If no agreement was reached reasonable rates would apply.

48.In the plaintiff’s First Interim Payment Application (“IPA No 1”) they said, “We wish to apply for your approval to waive the 3.95% from SCG sub‑contract.”  HKC argues that this demonstrates a 3.95% discount must have been in place, for it to be “waived”.  In any event, in the First Interim Payment Certificate (“IPC No 1”) no deduction was made.

49.Also in IPC No 2 no deduction was made.  The plaintiff had written “as discussed and agreed the 3.95% deduction … does not apply to our sub‑contract works.”

50.The plaintiff further points to Mr Man’s internal memo to HKC’s financial director dated 27 August 2001 as follows:

“Our company is still considering and studying in detail the plan for sub‑contracting SCG’s remaining works. However, unnecessary delays should not be caused to the progress of the construction works owing to the time required for the study. Moreover, Chan Shun Kei undertakes to carry out the sub-contract works for our company at the same rates as SCG charged. It is therefore determined that Chan Shun Kei will continue to be sub‑contractor for part of the works.”

51.The IPAs and IPCs thereafter become somewhat confused.  IPC No 3 (October 2001) deducted both 3.95% and 7.5%.  Later the 7.5% deduction was refunded.  The plaintiff submits that the 3.95% deduction only started in October and was not part of the original agreement. In their IPA No 5 (November 2001) the plaintiff, for the first time, included a 3.95% deduction.  They submit that this was because of an agreement that 3.95% could be temporarily deducted pending agreement on new rates in the future.

52.In short, the plaintiff’s case is that all the references to a 3.95% deduction are based on HKC’s wrongful decision to introduce it after the agreement in June, which was that there was to be no reduction.

53.HKC’s position is as follows.  Mr Man and Mr Derisley both testified that the agreement was always that 3.95% would apply.  In both IPA No 1 and No 2 Mr Chan asked for a waiver.  On 21 July 2001 his letter stated:

“Meanwhile, we wish to apply for your approval to waive the 3.95% from the SCG’s sub‑contract as previously arranged because the rate for the sub‑contract work is very low, especially the road work section. …”

and on 26 July 2001:

“… Therefore, we would apply for your approval to waive the deduction of 3.95% as arranged in S.C.G. sub-contract and this will encourage us to improve all futures works.”

54.In an earlier minor works order HKC had said (28 June 2001):

“Please construct the road works between chainage CH 2940 – 4180

We confirm that you agree to carry out the captioned works base on the same terms and conditions with your former employer (Messers. Shanghai Construction (Group)) with a discount in 3.95%.”

55.In October 2001 after HKC had deducted 3.95% plus 7.5% in IPC No 3 it acknowledged its error and refunded the 7.5%, but not the 3.95%.  In IPA No 5 (November 2001) the plaintiff confirmed in writing that the 7.5% discount did not apply (correctly), he does not go on to say the 3.95% did not apply.  Again in December 2001:

“At a meeting attended by your Messrs. Jiang and Poon and the undersigned [CSK] in October 2001, you had confirmed that only the 3.95% adjustment (as applicable in your previous sub-contract with SCG) will apply to our subcontract works. Other than this, there should be no further percentage adjustment.”

56.In March 2002 the plaintiff summarized the whole event as follows:

“The original rate of the management fees payable by the previous Sub‑contractor, SCG, was 3.95%. After we took over as the new Sub-Contractor in July last year, we requested on several occasions that you waive the 3.95% of management fees due to the fact that the original tender price was too low. MAN Foo Keung of your company agreed to our request at that time. We particularly reminded you of this promise in Interim Payment Applications No.1 and 2. Your Interim Payment Certificate regarding Interim Application No. 2 indicated that your company had honoured its promise and did not charge the aforesaid management fees. However, we found that you inexplicably charged us 11.45% from the Third Interim Payment.

… You confirmed at a meeting held in October last year that CSK might re‑negotiate the price for any item which it considered to be too low, but the management fees under the contract should remain at 3.95%, and if CSK progressed well with the works, HKC might provide a 2% rebate as an incentive.  Under the circumstances, CSK accepted this confirmation. …”

57.The important points from this letter, in my evaluation of it, are:

(i) that the plaintiff recognized 3.95% from the start;

(ii) the non‑reduction in IPC Nos 1 and 2 were as a result of a request for a waiver;

(iii) there was no promise to make the waiver a permanent feature;

(iv) on the contrary the 3.95% discount remained part of the original agreement; and

(v) there had been an incentive offer of a 2% reduction from the 3.95% in the event of good performance.

58.In my judgment the plaintiff’s position is most unlikely.  If, as they suggest, the deduction was only for interim applications pending a written agreement for better rates they would simply have to fail to agree in the future whereupon reasonable rates would apply.  More likely is the notion that there was a degree of certainty at the outset (namely a 3.95% discount) which left the ball in HKC’s court to agree to a waiver or not as required.  If there was a cash flow problem, for example, it could be waived for that particular interim payment and, possibly, recouped in a later interim payment if and when the finances had improved, or in the final account.  This was the effect of Mr Man’s evidence which I found to be logical and reliable.

59.In short, I conclude that the plaintiff has failed to persuade the court on a balance of probability that the parties orally agreed in June/July 2001 that SCG rates would apply until better rates were negotiated. I believe that Mr Lam misunderstood the position when he became project manager (in August 2001) and thereafter maintained a misconceived position.

(c) What other terms, expressed and/or implied were applicable following the June/July 2001 oral agreement?

60.The plaintiff claims that there was a promise from Mr Man to finalize the account with SCG under SC/041 within two to three months.  This was important to the plaintiff because he knew he had cash flow problems when taking the job on and the best way of solving them was to receive payments down the contractual chain swiftly.

61.Having considered the competing evidence on this issue I conclude as follows.  It would be natural of Mr Man to say that he would do his best to finalize the SCG account as soon as possible.  It would be in everybody’s interest.  It would not be natural, or likely, that he imposed a time limit on himself.  It would have been impossible for him to know if that deadline, or indeed any deadline, could be met.  There was no reason for him to constrain himself in such a way.  I am not persuaded that the express term contended for by the plaintiff existed.

62.The proposed new contract SC/068 was drafted but never signed.  HKC’s case is that it was agreed in June/July 2001 that the terms of SC0/41 between SCG and HKC would continue to apply until a new contract was agreed.  This makes complete sense.

63.It is difficult to see how the plaintiff can argue against provisions requiring them to proceed with the work with due diligence and without delay and to pay the salaries and wages of all employees (of which there should be sufficient numbers to perform the contract).  Provisions to this effect are in SC/041 (Clauses 6 and 39).  Failing this, and in the alternative, the terms claimed in HKC’s amended defence and counterclaim would be readily implied by the application of the principles in Trident Engineering Company Ltd v Mansion Holdings Ltd, HCCT 66/1996.  For present purposes however, I am satisfied that the terms relied on by HKC in SC/041 applied to the plaintiff’s contract by oral agreement at the material time.

ISSUE NO 2

What were the terms of the agreement made in February 2002 (if any)?

64.The background of this issue is the strike by the plaintiff’s labour on site at Chinese New Year 2002.  Cash flow problems had resulted in the workers remaining unpaid.  HKC argue that the problem resulted from the plaintiff’s poor financial management.  The plaintiff’s explanation was under‑certification in interim payments.  The strike ended after HKC’s financial intervention.

65.Later in the month, according to the plaintiff, an agreement was reached whereby works completed after 1 March 2002 would be paid on a daywork basis.  Should such payments turn out to be higher than the contract rate there would be no liability on the plaintiff to refund the differences.  It was an oral agreement made on site.  None of HKC’s witnesses who gave evidence were present.  Mr Chan and Mr Law for the plaintiff were there.

66.In support of the existence of the agreement, the plaintiff points out that his next IPA, that is No 9 on 21 March, claimed work done on a “daywork basis”.  Mr Yeung also submits that it was a time when other sub‑contractors and direct labour was being engaged on a daywork basis and it would be logical for there to have been an agreement that put the plaintiff on the same footing.

67.It was clearly the plaintiff’s belief that there had been an agreement.  However, my evaluation of the evidence is that the belief was based on a misinterpretation of what had probably happened.

68.On 11 April 2002 the plaintiff wrote to HKC stating that there had been much discussions about the financial situation and that an agreement had been reached that HKC would pay 80% of the plaintiff’s wage bill and all the plant and machinery costs.  The plaintiff accepts however, there is no written reference to the alleged “February agreement”.  This letter comes a month after HKC’s own internal letter (dated 5 March 2002) which sets out what HKC says had been agreed (just one week after the alleged agreement).  It concerns a loan to the plaintiff and agreement to pay their wages, not an agreement to pay daywork rates.

69.The plaintiff’s position is further weakened by the court’s finding that SC/041 applied to the new arrangements between HKC and the plaintiff from June/July 2001.  As already indicated it is inherently likely that it must have done.  The rhetorical question is, if the plaintiff has been promoted three tiers into SCG’s shoes why would HKC not require that the terms of that contract continue unless and until new terms were agreed?

70.Clause 19(3) of SC/041 provides that:

“No payment shall be made in respect of Dayworks unless a written order to execute work on a Daywork basis, has been issued to the Sub-Contractor. Where records are required they must be agreed and submitted to the Contractor on a daily basis.”

71.In conclusion, it seems that the difference between the parties on this issue has come about because the plaintiff believed that, in addition to HKC helping with cash wages and plant hire, it would have been fair and reasonable to be on the same terms as other sub‑contractors. This may have been their hope but I am not persuaded that the evidence bears this out.  Some daywork rates were indeed paid but these related to specific instructions and orders.

ISSUE NO 3

What were the terms of the agreement made in March 2002 (if any)?

72.This issue concerns a claim for daywork rates at a specific location, “WA1”.  It is the plaintiff’s case that the agreement was reached at a meeting on-site on 28 March 2002.  Again HKC’s trial witnesses were not present.

73.On this issue the plaintiff wrote a letter confirming the agreement the very next day, 29 March.  The letter stated:

“ We refer to the progress meeting on 28.3.2002 at which we were instructed by Mr.Y.M. Mak to add extra labour and plant and to work overtime for expediting the following drainage works:-

Location Between MH.29.3 and MH.29.6 Between MH.9.1.9 and MH.9.1.10

Works Gullies, pipes and manholes; Gullies, and pipes.

To compensate for our increased overheads, you have agreed that the labour and plant engaged in the above locations at day time would be paid for dayworks under the regular rates and those engaged at overtime hours, under the appropriate overtime rates.  These dayworks would be paid as extra items over the original BQ items which would also be measured and paid for.”

74.This work was completed on 6 April 2002.  HKC had not commented on the above letter.  Accordingly the plaintiff’s next IPA adopted the valuation in accordance with his understanding of the agreement.  In this instance I am satisfied that the plaintiff’s understanding was correct and HKC should be bound by it.  It was location specific and immediately done, as agreed.  It is hoped that, when quantum negotiations take place in the near future a figure for this item will be agreed.  If not, and if it is considered necessary for HKC’s quantum expert to prepare a supplemental report in relation to WA1, I hereby give leave.

ISSUE NO 4

What was the amount of work completed by the plaintiff?

75.This issue has already been outlined in some detail at page 8 in this judgment. 

76.The starting point of HKC’s objections to the Blue & Yellow drawings is the remarkable increase in the plaintiff’s claim as a result.  In approximate terms from $10 million in 2003/4 to nearly $40 million in 2011 (later reduced to $28 million).  Mr Yeung for the plaintiff submits this is not the correct way to evaluate the increase.  He submits that the plaintiff’s 2003 figure for “total work done” was $27 million, whereas the same assessment after the Blue & Yellow drawings was $39 million. The fact remains however that in 2003 the plaintiff was not claiming $27 million, he was claiming $10 million.  That figure trebled.

77.The following matters are also important and relevant:

(i) Mr Derisley’s letter dated 2 October 2002 when providing the drawings did not say that they represented all the works completed by the plaintiff.  The plaintiff, however now relies on them as being just that.

(ii) The drawings were never signed or agreed by the parties.

(iii) No weight can be safely attached to Mr Law’s testimony that he remembered that the plaintiff had carried out certain areas of work (work that was included in the Blue & Yellow drawings but not included in the 2003 final account) when there were no documents to support his memory, and his 168 page witness statement was silent on the matter, bearing in mind that his testimony was over 12 years after the event.

(iv) Mr Law did not use the Blue & Yellow drawings when preparing the final account which was completed in mid 2003.  The drawings were not used either in the preparation of the case leading up to the 2004 Statement of Claim.  Mr Law’s explanation was that it would have been time consuming (he estimated a two to three month exercise) and that his prime objective was to reach a settlement.  It is surprising that in the two years between leaving the site and the 2004 Statement of Claim, at a time when the plaintiff was frustrated about HKC’s unwillingness to pay over significantly large sums of money, and at a time when the plaintiff had the advantage of being legally aided, the Blue & Yellow drawings remained on the shelf.

(v) In support of the plaintiff’s agreement that the Blue & Yellow drawings provide the correct basis for their claim it was pointed out that when they were requested in 2002, it was said, in writing, that they were required “for the preparation of final bills”.  Once it is established, however, that they were never, in fact, so used the point disappears.

(vi) In support of HKC’s argument against the Blue & Yellow drawings some evidence was adduced from HKC’s quantum expert report.  In particular, evidence of quantities of materials claimed in 2011 which did not feature in 2004 together with Mr Law’s explanation for the various, and sometimes very large, inconsistencies.  I have not found it necessary to weigh this evidence in the balance.  The expert in question, Mr Raymond Chu was not called, this being a liability trial only, and I have found it possible to resolve the dispute on the totality of the other evidence called.

78.I have concluded that the plaintiff’s attempt to rely on the Blue & Yellow drawings, must fail.  The 2003 final account is more contemporaneous, better documented, consistent with conventional methods of preparing final accounts, likely to be more accurate, checked at the time and for all these reasons, more reliable.  It was the plaintiff’s onus to prove on the balance of probabilities that the Blue & Yellow drawings should displace the 2003 account.  In my judgment the evidence falls well short of this burden being discharged.

79.This finding will necessitate the plaintiff’s quantum expert re‑calculating the claim without reference to the Blue & Yellow drawings. If a significant disparity still exists between the two new set of figures a quantum trial will only be avoided if commercial decisions are taken on both sides.

80.For the avoidance of doubt, once the Blue & Yellow drawings are out of the picture what remains is the plaintiff’s case as was originally pleaded.  I find no merit in Mr Lam’s submission that if the Blue & Yellow drawings go, then the whole of the plaintiff’s claim goes with it.  His argument being that the original claim for $10 million was crossed out and is not pleaded in the alternative.  This does not reflect the reality of the situation.  The plaintiff cannot lose the war simply because it lost a battle.  Its original claim is valid and should be quantified.

ISSUES 5 AND 6

Were there any breaches and was the termination right or wrong?

81.The plaintiff claims that HKC breached the oral agreement in five ways:

(1)   Wrongful deduction of 3.95% and 7.5% in interim payments:

In view of the court findings the 3.95% issue does not arise.  7.5% was wrongfully deducted but rectified.

(2)   Failure to complete SGC’s final account within three months:

As found, this was not a term of the contract.

(3)   Failure to implement the February and March agreements:

I have found there was no February agreement.  The extent of the breach of the March agreement cannot yet be determined.  In any event it came at a time when the plaintiff had already been warned about its performance and HKC was financing them.

(4)   Wrongful sub-contracting of parts of the road and drainage works to other sub-contractors:

Again, any earlier findings eliminate this as a possible breach.

(5)   Under‑valuation of interim payments:

In the absence of evidence from the parties’ quantum experts it is not possible to make a final determination on this matter.  However, a number of matters do combine to enable the court to find that there was no deliberate under certification.  Firstly, all certified payments over the material time were within time according to SC/041. Secondly, it is usual for certified payments to be less than the amount applied for; that is why they are “interim”.  Such differences that were brought to the court’s attention during the trial were reasonably explained by HKC’s witnesses and by Mr Lam’s submissions.  Whilst it may be true that the plaintiff has been underpaid in the interim payment, I detected nothing from the evidence to suggest the underpayments (if any) were grossly excessive and/or designed to disadvantage to plaintiff.  On the contrary, HKC lent significant financial support in addition to the certified payments.

82.The contract was terminated by letter dated 13 June 2002.  The letter was specific, it stated clearly:

“We refer to various discussions and meeting with you over the past weeks and months and regret to note the following:-

1. In our opinion you continue to maintain insufficient resources on site to complete the Sub-Contract Works in compliance with our requirements.

2. You continue to fail to pay the salaries or wages of your employees.

It is therefore with regret that pursuant to Clause 25(f) and 25(g) of the General Conditions of Subcontract we hereby terminate the above Subcontract with immediate effect.”

83.I have determined that from June/July 2001 both parties were bound by the terms of SC/041.  It provided that the sub‑contractor may be removed from site if it:

“(f) Fails to execute the Sub-Contract Works or to perform his other obligations in accordance with the Sub- contract within 10 days after being required in writing so to do by the Contractor; or

(g)   Fails to pay the salaries or wages of his employees when same are due within 10 days after being required in writing so to do by the Contractor3;”

84.HKC acknowledge that they did not comply with the 10 day provision in clause 39.  Rather than considering whether HKC can rely on common law termination as an alternative I consider the proper finding to be that HKC were entitled to terminate but because of a technical omission the termination was not rightful.  This is not to say that any failure to comply with such a time provision would also be technical.  However, it can safely be regarded as technical in this case when viewed in context.

85.The plaintiff knew that the two matters relied on by HKC had been matters of concern since, at least, October 2001.  Many letters of concern and complaint were sent in the next few months.  The situation did not improve and came to a head with the strike in early February 2002.  The plaintiff’s argument that in March, April and May the letters of complaint and concern eased off is plainly due to the fact that HKC had taken over the finances and were engaging other sub-contractors.  I accept and agree that the plaintiff’s repudiatory breach, as communicated to the plaintiff verbally on 3 June 2002 and in writing on 13 June 2002, was identified in March 2002 and continued thereafter.  The harsh reality is that the plaintiff was given an opportunity in July 2001, which it eagerly accepted, but could not cope.

ISSUE NO 7

Is the plaintiff liable for the contra-charges claimed against him?

86.HKC’s claim for contra-charges amounts to $6.1 million, of which, at the outset of the trial, approximately $4 million were not in dispute.

87.In the course of the trial some further admissions were made.  There were 39 outstanding items which have been helpfully sub‑divided into eight categories.  In some instances the liability for contra‑charges flows from decisions already made in this judgment.  Following HKC’s “Annex 5”, I resolve the contra‑charges issues as follows:

(1) My finding in relation to the alleged “February Agreement” means that the following items may be properly contra‑charged by HKC: 1, 2, 4, 5, 6, 8, 9, 10, 15, 17, 19, 20, 21, 33 and 38.  There is no issue on quantum on any of these items.

(2) Item 12—the plaintiff is not liable.

(3) Items 18, 22, 27, 28, 29, 34, 35 and 36—the plaintiff is not liable due to lack of documentary support.

(4) Item 25—the plaintiff is liable by admission.

(5) Items 19, 21, 23, 24, 26, 30, 31, 37 and 39—the plaintiff is liable by virtue of my finding on the termination of the contract.

(6) Labour tribunal costs—the plaintiff is liable.

(7) Employees’ compensation—the plaintiff is not liable.

ISSUE NO 8

Geotextile and Armour rock claim

88.This is a discrete item, the quantum of which remains in dispute.  At this stage the only question is whether the plaintiff has a valid claim at all.  If it does not, the quantum experts need not consider the quantum issues.  If it does, either the experts or the court will be required to finalize the plaintiff’s entitlement.

89.In a letter dated 23 November 2001 the plaintiff explained what it had done and why the claim was justified.  It is a detailed account which was confirmed by Mr Law in evidence. HKC acknowledges that the excavation works at the particular site required extra work but they say that the plaintiff used the wrong equipment and incurred extra costs unnecessarily. In IPC No 7 HKC paid a substantial sum representing 60% of the plaintiff’s claim under this heading.  In my judgment Mr Law has given a credible account of why extra cash was necessitated and I am satisfied the plaintiff has discharged its burden of proof for this item.  The balance of 40% is due plus any further sums deemed reasonable by the quantum experts.

LEGAL ISSUES

(1) The oral contract

90.I have determined that an oral contract came into being in late June 2001.  Its terms have been the subject of this judgment.  For reasons already outlined it has not been necessary to consider the law relating to implied terms because those relied on by HKC were expressed in SC/041 and bound the plaintiff.  I can envisage no commercial basis for HKC permitting the plaintiff to step into SCG’s shoes other than on the terms which bound SCG (save specific terms relating to the scope of works and rates which have been explained and were logical).  In my judgment the plaintiff’s position in this trial has frequently been influenced by its hope that something better could be negotiated.  However:

“When negotiations are in progress been parties intending to enter into a contract the whole of those negotiations must be looked at to determine when if at all, the contract comes into being… Once the contract comes into being, however, subsequent negotiations by either party seeking, for example, to obtain better terms will not affect the existence of the previously concluded contract.” (British Guiana Credit Corp v Da Silva [1965] 1 WLR 248 at 255)

(2) Mr Alan Law’s evidence

91.Mr Lam, for HKC, has submitted that approximately 115 out of 444 paragraphs in Mr Law’s 168 page witness statement are inadmissible because they are either hearsay or expert opinion evidence.  It would be a painstaking and unhelpful exercise to deal with each and every separate complaint.

92.In general terms it is correct that on a number of occasions Mr Law’s written evidence crossed the line into opinion evidence which is the domain of the expert witnesses.  More often than not however such crossing of the line was into matters of quantum with which the court is not yet concerned.  Although not an expert witness and not a qualified quantity surveyor, nonetheless he is a graduate in civil engineering from Hong Kong University, a chartered engineer since 1977 and a member of the Hong Kong Institute of Engineers.  He was certainly experienced and it is perhaps not surprising that he felt unable to write the full picture of the plaintiff’s case without trespassing into expert areas.  Nonetheless, if I am later required to make decisions on quantum issues I shall rely solely on the evidence of the two experts in this case and their reports.

93.At trial his witness statement was admitted de bene esse.  It is correct that the statement contained many hearsay elements.  Mr Law’s statement was not alone in that regard.  HKC’s witnesses also testified as to their “understanding” of what had been said at meetings and looked to contemporaneous documents to support such understandings and beliefs.  In my judgment, the approach to hearsay in a case such as this, where events unfold on a very large construction site, where many many people carry out a variety of different functions, attend different meetings and are responsible at different levels of the operation—all 12 years ago—is to recognize the inevitability of hearsay evidence, and attach such weight to it, which may be nil, as is appropriate and necessary in the circumstances to reach a fair result.

94.In this context the importance of contemporaneous documents cannot be overstated. I accept that Mr Law’s perception of events (12 years ago) was for the most part, honestly held.  His interest in the case led him at times to hold an honest but erroneous view.  In such instances his hearsay evidence carries little or no weight.  On the other hand, where contemporaneous documents corroborate his “understanding” more weight may be attached to it.

95.Kaplan J in Eu Asia Engineering Ltd v Wing Hong Contractors Ltd, HCCT 16/1990, summarized the position thus:

“ In construction cases, as in most other cases, I attach great significance to the contemporaneous documents. These are usually prepared in good faith before a dispute has arisen or at any rate crystallised. It is a particularly devious contractor, employer or sub-contractor who systematically manufactures documents to assist in a future dispute. Fortunately, such instances are rare. I accept that once a dispute has been identified it is necessary to pay careful attention to the documents created after that time because it is only natural that parties will reflect their grievances and justification for actions taken in those documents. I am quite satisfied that all the contemporaneous documents until just before the crucial events can be relied upon. I will have to look harder at the other documents prepared once the dispute existed.”

(3) Mr Neville Poon’s lack of evidence

96.Mr Yeung, for the plaintiff, criticizes HKC for not calling Mr Neville Poon as a witness.  He had made a witness statement dated 12 October 2012.  He was HKC’s project quantity surveyor at the time.  It was a three-page statement.  He had left the employment of HKC 10 years before he wrote his statement.

97.Although his statement was short Mr Yeung submits that his role in the project was important and he should have had the opportunity of cross‑examining him. To be fair, his non‑appearance was not a surprise as the plaintiff had been informed of the situation well before the trial.

98.It is true that the plaintiff could have subpoenaed him but the reality is that that would have been of little advantage to the plaintiff.

99.Mr Yeung points to the observations of Fuad JA in Chan Yiu Wah and another v The Hongkong and Shanghai Banking Corporation [1988] 1 HKLR 457 where he cited Wigmore on Evidence (Chadbourn Revision), Vol 1.2 (at p 192):

“285. Failure to produce evidence, as indicating unfavorable tenor of evidence: (1) In general. … The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so; and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavorable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and. they are also open always to explanation by circumstances which make some other hypothesis a more natural one than the party’s fear of exposure. But the propriety of such an inference in general is not doubted.”

100.Each case must be considered in context.  In this case I can see no justification in drawing any adverse inference from Mr Poon’s absence.  The court was informed he simply did not wish to be involved after such a long period of time (which perhaps also explains the brevity of his statement).  There is no single piece of evidence which only Mr Poon could have given and no suggestion was made that his absence was in any way in bad faith.

(4) Interim Payment Certificates

101.I consider it important under the sub‑heading of “legal issues” to put down a marker on the subject of IPCs.  On the factual side I have already stated that IPAs and IPCs invariably differ for obvious reasons.  After the handing down of this decision on liability the parties together with their quantum experts will again sit down to consider the new scenario.  The value of the interim payments will be a key matter.

102.In Keating on Construction Contracts, 9^th edition, it is stated that:

“Certification may be a complex exercise involving an exercise of judgment and an investigation and assessment of potentially complex and voluminous material. An assessment by an engineer of the appropriate interim payment may have a margin of error either way … At the interim stage it cannot always be a wholly exact exercise. It must include an element of assessment and judgment. Its purpose is not to produce a final determination of the remuneration to which the contractor is entitled but is to provide a fair system of monthly progress payments to be made to the contractor.”

103.In light of all findings made, HKC’s expert should now take a second look at the alleged under‑certification to see if common ground, in 2014, can be found between the plaintiff’s claim of “gross undervaluation” and HKC’s position of “no undervaluation”.

WITNESSES AT TRIAL

104.Finally I will briefly state the court’s evaluation of the witnesses at trial.  Six gave evidence and I have already commented on Mr Law’s very lengthy statement and evidence.  Of the remaining five I will only mention three, the plaintiff himself, Mr Mark Nicholas Derisley and Mr Man Foo Keung.

(1) Mr Chan Shun Kei

105.He was a sole proprietor of his own company which had been engaged, on a contract by contract basis, in a number of projects over a period of about 15 years prior to the Tolo Highway scheme.  His inability to speak or write English meant he relied heavily on Mr Law in all dealings with HKC.  Although Mr Law was his employee, Mr Law had greater experience in engineering and sub‑contract matters and was, in reality, the plaintiff’s “front man” for the 10 months he was on site up to termination.

106.Mr Chan’s sincerity and hard work are not doubted but when matters became problematic he was not able to stem the tide and, in general terms, in his own mind, he converted his own mismanagement into grievances against HKC.  To detail his ‘mismanagement’ would be to repeat matters already dealt with.  The two key problems were:

(i) starting with cash flow problems in the ‘hope’ that they would be solved; and

(ii) instances of poor ordering of materials.

107.A judgment often has to be made in cases where neither side is deliberately trying to mislead the court.  In this case it was safer, on many of the key issues, to rely on HKC’s evidence.

(2) Mr Mark Derisley

108.Mr Derisley’s employment on this project, 1999 to 2004, was longer than anyone else.  He was on site daily.  He always recognized the problem of casting his mind back 12 years and when he could not be exact or confident about an answer because of the time lapse, he said so.

109.He was directly responsible for much of the correspondence referred to in evidence and did not try to put a gloss on it to improve HKC’s case.  Given the inevitable difficulties resulting from the many years that have passed and the huge volume of documents which have been created in the mean time, I regarded his evidence as fair, helpful and reliable.

(3) Mr Man Foo Keung

110.Mr Man was Mr Derisley’s superior and as such was on site less often.  He nonetheless had a clear memory of key issues.  He was the head of civil engineering at HKC.  I was satisfied that he would have been fully aware of the terms upon which the plaintiff was promoted to 1^st tier sub‑contractor in June/July 2001.  His evidence made sense, reflected the truth of what had transpired and therefore was relied upon.

111.His evidence was criticized on the basis that being higher up in the HKC hierarchy he would have had less direct knowledge about what was said at the time. Whilst there may be some truth in this, he was still a man who did have direct talks with the plaintiff and had he had any suspicion that terms such as those being contended for by the plaintiff were in fact being discussed at site‑level, he would have intervened to ensure that the terms were as he testified, namely those terms which HKC has in this trial established on the evidence.

COSTS

112.At this stage this judgment will be silent on the matter of costs.  When the parties now meet to consider the quantum issues in the light of these findings, costs will be a factor.

113.One observation should be made.  If the parties are able to agree matters of quantum (or agree a good number of matters) but remain unable to agree on costs it would be regrettable if the whole process thereby floundered.  In such a situation the parties should consider simply making written submissions on costs, in the light of whatever may have been agreed, for the court to make a final order.

114.Counsel and those instructing them have been of considerable assistance in this case.  Their industry and knowledge of the case has been impressive.  The evidence, written submissions and oral submissions were all dealt with efficiently, comprehensively and helpfully.

Mr Yeung Ming Tai and Mr Yan Kwok Wing, instructed by

Robin Bridge & John Liu, assigned by Director of Legal Aid, for the plaintiff

Mr Osmond Lam and Ms Emerald Shek, instructed by Mayer Brown JSM, for the defendant