YEE SANG METAL SUPPLIES CO v. DEFAG CONSTRUCTION CO AND ANOTHER

HCA002212B/1966

 

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

 

ACTION NO. 2212 OF 1966

-----------------

 

BETWEEN
	Yee Sang Metal Supplies Company	Plaintiffs
	and
	Defag Construction Company	1st Defendants
	Tak Ming Company Limited	2nd Defendants

-----------------

Coram: Pickering, J.

Date of Judgment: 7 July 1970

 

-----------------

DECISION

-----------------

 

1. On the 3rd of January, 1969, I gave judgment for the plaintiff firm in an action against the second defendant company whereunder the plaintiffs claimed the sum of $352,000 in respect of an alleged promise by the second defendant company to pay for steelwork performed by the plaintiffs on a 16-storey building. In addition to the claim for $352,000, the plaintiffs claimed interest thereon at the rate of 8 per cent per annum from the commencement of the action to the date of payment under O.15 r.7 of the then Code of Civil Procedure.

2. At the trial both parties requested me, partly with a view to a possible saving of costs, to confine my judgment to the issue of liability leaving that of quantum to be assessed subsequently by an expert, a structural engineer. This I agreed to do and, in the result, I found the second defendant company liable to the plaintiff firm for the balance, if any, of the price of work done on the site by the plaintiff firm in excess of the sum of $884,000 already then received by the plaintiffs. In my judgment I made no reference to the plaintiffs' claim for interest on the sum of $352,000.

3. The matter now comes before me on a notice of motion asking that my judgment of 3rd of January, 1969, be corrected by the inclusion of an order that the second defendant company pay interest to the plaintiff firm on the judgment debt at the rate of 8 per cent per annum from the commencement of the action, or, alternatively, from the date of the judgment to the date of payment pursuant to the claim in the Statement of Claim. The amount of the judgment debt was assessed by the expert at $332,635.17 and judgment has been entered for that amount against the second defendant company. The ground of the present application is that owing to an accidental omission the judgment of 3rd January 1969 as to liability did not provide for interest on whatever sum might be assessed as due to the plaintiff firm.

4. At the outset of the present hearing Mr. Mills-Owens for the second defendant company raised the preliminary argument that the matter was res judicata. A summons had been taken out by the plaintiffs under O.6 r.2A of the Rules of the Supreme Court asking for an order that interest be paid by the second defendants to the plaintiffs on the said sum of $332,635.17 and that such interest be at the rate of 8 per cent per annum from the date of commencement of the action until payment of the judgment debt. On the 16th of August, 1969, my brother Briggs refused the application being, I am informed by counsel, of the view that he had no jurisdiction to make the order sought and that a successful plaintiff could either obtain an order for interest at the time of his judgment or not at all. In the light of that refusal, counsel urged, the issue had been decided and the matter was res judicata.

5. Had this application before me been made under O.6 r.2A I would have been constrained to agree, but the notice of motion does not ask me, as the summons asked my brother Briggs, to, as it were, pluck an amount of interest out of empty air and then tack it on to the amount of a judgment already entered. What I am asked to do is to correct my judgment by including in it an order for the payment of interest which order was in fact a part of the plaintiffs' Prayer in the original Statement of Claim. The application is made under the Slip Rule (O.20 r.11), and I am in no doubt that I have jurisdiction under that order and rule to make the correction sought provided that the original failure to order the payment of interest was in fact an accidental slip or omission and that all the circumstances of the case render it equitable that I should so exercise my discretion. Equally, my brother had no jurisdiction to make the order sought of him, but the issue is now as to whether the Slip Rule should be applied and that issue is not res judicata.

6. Mr. Swaine, for the plaintiff firm, submitted that the question for the court was really whether, if the award or otherwise of interest had been in my mind when I was delivering judgment, I would or would not have acceded to the request for interest. Mr. Swaine quoted the case of Re Inchcape⁽¹⁾ and said that the judgment in the present case having been handed down and not read in court, counsel had had no opportunity to ask for interest and indeed, since the quantum remained to be assessed, such a request might have been premature.

7. Mr. Mills-Owens for the second defendant company pointed out that formal judgment for the amount assessed had been entered on the 23rd of August, 1969, and the second defendant company's appeal to the Full Court on the issue of liability having been dismissed, the matter was now before the Privy Council; it would be highly unsatisfactory to have a parallel series of appeals on the question of interest. This is an observation with which I cannot but agree, but it does not, in my view, constitute a reason for depriving the plaintiffs of the fruits of their claim to interest if otherwise they are entitled to it.

8. Counsel further referred to the case of Mogra v. Pavri & another⁽²⁾ where the court had declined to add interest to the judgment debt and relied in particular upon a passage where Gould J. said:

"It is one thing to remedy an omission to ask for something which would have been granted almost as of course; it is quite another to embark at this stage on the decision of a question which would entail considerable argument on the merits and on law. I am satisfied that the rule does not give jurisdiction to go so far. If it did, it would also enable counsel to argue an alternative claim or defence which had slipped his memory at the trial."

9. It does not seem to me that this passage assists the second defendant company for the reason that in the present case, unlike the Mogra case, the plaintiffs did claim interest in their Statement of Claim. Moreover, in the Mogra case, it was held that the judge was functus officio "the Slip Rule apart". The very good reason for refusing to apply the Slip Rule in the Mogra case was that interest had never been claimed in the Pleadings or argued or asked for at the hearing. In the present case there was a specific claim for interest in the Statement of Claim.

10. Perhaps more in point was the next case referred to, which was Moore v. Buchanan⁽³⁾ where the court of appeal held that "although the court was always competent, on an application under the slip rule, to correct its judgment, it had jurisdiction to exercise its discretion not to do so, not only in cases where the rights of third parties had intervened, but in cases where something had happened since the date of the oral judgment which rendered it inexpedient or inequitable so to do".

11. In the present case, counsel continued, the plaintiffs had failed to act timeously, for, on the admission of their counsel, interest had been very much in their minds at the date of judgment and as early as the 8th of February, 1969, the possibility of an application for the correction of the judgment by the inclusion of an order for interest had been mentioned to the judge when the case was again before the court for the appointment of an assessor of damages: application should have been made timeously and it was no answer to say that at that date the damages had not been assessed.

12. Mr. Mills-Owens' most fundamental approach, however, was in his argument that the court had no jurisdiction to make the order sought. The statutory authority for the award of interest on judgments lay in the Law Reform (Interest on Claims and Judgments) Ordinance, 1970, which came into force on the 9th of January, 1970, and was not retrospective so that it was not in force at the date of the judgment in this action. At common law there was no right to interest in the absence of contract or mercantile usage. True, O.6 r.2A of the present Rules of the Supreme Court purported to give the court power to award interest but notwithstanding that before the court in fact had any such power there must be substantive legislation in force and there was no such legislation until 1970. Since neither the Judgments Act of 1838 nor s.28 of the Civil Procedure Act 1833 were included in the schedule to the Application of English Laws Ordinance, Cap.88, it followed that at the date of the judgment there was no power in the court to award interest.

13. Replying on this issue of the court's jurisdiction, Mr. Swaine, after briefly reviewing the history of the award of interest upon judgments by the courts in Hong Kong, said that at the date of the Statement of Claim, the relevant power was contained in O.15 r.7 of the former Code of Civil Procedure which was the order and rule invoked in the Prayer for interest in the Statement of Claim. That order and rule had been superseded before the action came on for trial by new Rules of the Supreme Court, notably O.6 r.2A which reads:-

"2A. When the action is for a sum of money due to the plaintiff the court may in the judgment order interest at such rate as the court may think proper to be paid on the principal sum adjudged from the commencement of the action to the date of the judgment, in addition to any interest adjudged on such principal sum for any period prior to the commencement of the action; and further interest, at such rate as may for the time being be fixed by the court, shall be recoverable on the aggregate sum so adjudged, from the date of the judgment to the date of payment."

and which was reproduced verbatim from O.15 r.7 of the former Code of Civil Procedure.

14. The statutory authority for the making of O.6 r.2A was to be found in s.38, sub-s.(1)(u) of the Supreme Court Ordinance, Cap. 4, providing:

"38. (1) Rules of court under this Ordinance may prescribe or provide for -

	.............................
	.............................
	.............................

(u)

all matters which could heretofore or which have heretofore been provided for or regulated by or which have been contained in the Code of Civil Procedure."

15. Thus, counsel argued, at the date of the judgment there was valid power, derived ultimately from substantive legislation, to award interest as from the commencement of the action.

16. These appear to me to be cogent and convincing arguments, and I am unable to agree that at the date of judgment the court had, in any event, no jurisdiction to award interest.

17. As to the allegation that the plaintiffs had not acted timeously, Mr. Swaine urged that they had not gone to sleep on the matter, but had taken the step, albeit a mis-conceived step, of attempting to obtain an order for the payment of interest under O.6 r.2A of the Rules of the Supreme Court. The case of Buchanan v. Moore (supra) was readily distinguishable since in that case the court of appeal had thought it oppressive to go back to the judge under the Slip Rule at a stage when the application of that rule could no longer possibly assist the applicant. In the present case the application of the Rule would be of very real advantage to the plaintiff firm.

18. A most important matter for me to consider is what I would have done at the time I gave judgment had this matter of interest been in my mind. After a lengthy trial, in the course of which both sides asked me to confine my decision to the issue of liability, and having written a long judgment which occasioned to me no small difficulty, my mind was on the issue of liability rather than upon any figures. But had I thought the matter through further, as I should have done, I am in no doubt whatever, having a very clear recollection of the case and of the evasiveness of Mr. Cheng, witness for the second defendant company, that I would have made an award of interest. Unfortunately for the plaintiff firm, I did not read the lengthy judgment in court but handed it down so that the omission was not obvious to counsel for the plaintiff before I had left the court.

19. On the basis of what I would have done on the date of judgment, had counsel had an opportunity of drawing my attention to the Prayer for interest, I would today be disposed to exercise my discretion to correct my finding to include an award of interest.

20. It remains to consider whether or not anything has occurred in the interim which would render it inequitable for me so to act now. No third party rights have intervened; if the correction is now made the second defendant company will be in no worse position in regard to the amount of the judgment against it than had the award of interest been made at the time of the judgment. It is true that if the second defendants are advised to appeal against my present decision, they would be obliged to run two parallel lines of appeal. Such a disadvantage would go to the question of the costs of such second line of appeal and the question of where the burden of such costs should lie would no doubt be a matter for the appellate court after due consideration of all the factors including whether or not the plaintiffs can be said to have acted timeously in regard to their present application or whether it would have been competent to them to have brought such application in good time for the issue of interest to have been incorporated with the appeal against liability.

21. In all the circumstances the proper course appears to me to be to order the correction of the first sentence of the final paragraph of my judgment of 3rd January 1969. That sentence ran:-

"          The second defendant company is however liable to the plaintiff firm for the balance, if any, of the price of work done on the site by the plaintiff firm in excess of the sum of $884,000.00 already received by the plaintiffs."

and is to be corrected by the deletion of the full stop at the end thereof and the addition of the words:-

"and such balance, if any, is to bear interest at the rate of 8% per annum from the date of commencement of this action until the date of payment."

22. In parenthesis I would observe that this is what the plaintiff firm asked for in its Statement of Claim but less than it might have asked for. Under O.15 r.7 of the old Code of Civil Procedure as reproduced in O.6 r.2A of the Rules of the Supreme Court it would have been open to the plaintiff firm to have asked for interest on the amount found due as from the date of the writ to the date of judgment and then for further interest on that aggregate sum so adjudged, from the date of the judgment to the date of payment. Such however was not the Prayer and the correction is confined to the terms of the Prayer.

Having now heard counsel as to the costs of this Motion, I order that each side bear its own costs.

 

 

	(W.F. Pickering)
	Puisne Judge.

 

Representation:

Decision read in Court.

Swaine (Hastings & Co.) for Plaintiffs.

Mills-Owens (Samuel Soo & Co.) for 2nd Defendants.

(1) (1942) Ch. 394

(2) 37 H.K.L.R. 135

(3) (1967) 1 W.L.R. 1341.

HCA002212A/1966

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION NO. 2212 OF 1966

-----------------

BETWEEN
	YEE SANG METAL SUPPLIES COMPANY	Plaintiffs
	AND
	DEFAG CONSTRUCTION COMPANY	1st Defendant
	TAK MING COMPANY LIMITED	2nd Defendant

Coram: Blair-Kerr, J.

Date of Judgment: 1 April 1969

 

-----------------

JUDGMENT

-----------------

 

1. This action originally came before the late Mr. Justice Creedon. After the hearing had continued for 5 days (25th/29th March 1968) the plaintiffs applied for an adjournment and the learned judge granted their application; but it was ordered that:-

	(1)	the costs of 29th March 1968 be taxed on a solicitor and client basis and paid by the plaintiffs to the 2nd defendants forthwith upon taxation; and
	(2)	any other costs of, incidental to, occasioned and thrown away by the adjournment be the 2nd defendants' in any event.

The 2nd defendants have taxed their costs under heading (1) above but they have not yet taxed their costs under heading (2).

2. In the meantime, Mr. Justice Creedon died and the action was heard de novo by Mr. Justice Pickering who gave judgment in favour of the plaintiffs with costs. The plaintiffs' costs have been taxed at $19,403.25.

3. The 2nd defendants are appealing and the hearing of the appeal has been fixed for 5th/9th May. No grounds of appeal have yet been filed. I have glanced through the judgment. The decision appears to turn largely on questions of fact; and the learned judge's findings of fact appear to be based largely upon his construction of certain documents.

4. This is an application by the 2nd defendants for an order that execution on the sum of $19,403.25 being the plaintiffs' costs allowed on taxation be stayed until the determination of the appeal.

5. Counsel are not in dispute as to the general principles which should guide a court upon the hearing of such an application. As Lord Esher M.R. said in Atkins v. Great Western Railway⁽¹⁾:-

"As a general rule the only ground for a stay of execution is an affidavit showing that if damages and costs were paid there is no reasonable probability of getting them back if the appeal succeeds."

6. The managing director of the 2nd defendants has filed an affidavit; and in para. 6 he says:-

"..... I have reason to believe that if the said sum of $19,403.25 was paid to the plaintiffs there is no reasonable probability of the 2nd defendants getting it back if the said (appeal) succeeds because it is within my personal knowledge that the plaintiffs have not been successful in their business and have been in financial difficulties."

In reply the managing partner of the plaintiffs has filed an affidavit disclosing the plaintiffs' assets and income. There is no challenge to the facts disclosed by the plaintiffs; and the point has not been pursued by counsel for the 2nd defendants. I have no reliable evidence before me that the plaintiffs have been in financial difficulties; and consequently, I have no reason to think that if the appeal should be successful the 2nd defendants would not get back any costs paid by them now.

7. However, counsel has urged a further point. He says that the 2nd defendants' bill of costs under heading (2) above is in draft and that the costs involved are in the region of $7,000; and he submits that this court should order that the 2nd defendants pay $12,000 only into Court, that is to say $19,000 less $7,000.

8. Counsel for the plaintiffs submits that the 2nd defendants ought to have taken steps to ensure that their bill under heading (2) was taxed at the same time as the plaintiffs' bill of costs, and that it is not open to them now, upon an application of this nature, to put forward as a reason for a partial stay the fact that they have been tardy in submitting their bill for taxation. Alternatively, counsel submits that the sum of $7,000 should be reduced considerably; and he suggests that $16,000 should be paid now to the plaintiffs' solicitors.

9. I have looked at the draft bill for $7,000. This sum consists mainly of costs in respect of the hearing from the 25th/28th March 1968 which was rendered abortive because of the death of Mr. Justice Creedon.

10. I do not think that on this application I should have any regard to the 2nd defendants' draft bill. Whatever I say would inevitably have a bearing on the manner in which the taxing master would ultimately deal with it. The essential fact is that the 2nd defendants have been tardy in submitting their bill for taxation; and I do not think that they can complain if I decline to reduce the sum payable in respect of the plaintiffs' costs by $7,000 or by some lesser sum on the assumption that the final figure allowed by the taxing master may be something less than $7,000.

11. Counsel for the 2nd defendants submitted finally that the Court might well feel that English decisions such as The Annet Lyle⁽²⁾ (which has been considered in a number of Hong Kong cases such as Brentwood Wig Manufactory Ltd. v. Richard Poncher & Another⁽³⁾) should not be followed blindly, the suggestion being that the Court should keep clearly in mind the possibility of "fly by night" companies operating in Hong Kong.

12. That, of course, is a matter which Hong Kong Courts must always keep clearly in mind. On the other hand, no court should speculate; and on the evidence before me I have no reason to think that the plaintiffs would not repay the $19,403.25 in the event of the 2nd defendants being successful on the appeal.

13. For the above reasons the application for a stay is refused. It is Ordered that the $19,403.25 be paid now to the plaintiffs' solicitors on the usual undertaking to repay in the event of the appeal being successful. Costs of this application to be paid by the 2nd defendants. Certified fit for counsel.

 

 

	(W.A. Blair-Kerr)
	Puisne Judge

 

1 APR 1969

 

Representation:

J. Swaine (Hastings & Co.) for Plaintiff.

H. Litton (Samiel Soo & Co.) for 2nd Defendant.

 

 

(1) (1886) 2 T.L.R. 400

(2) (1886) 11 P.D. 114

(3) (1966) H.K.L.R. 643.

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 2212 OF 1966

-----------------

BETWEEN
	Yee Sang Metal Supplies Company	Plaintiffs
	AND
	Defag Construction Company	1st Defendants
	Tak Ming Company Limited	2nd Defendant

-----------------

 

Coram: Pickering J.

Date of Judgment: 3 January 1969

 

-----------------

JUDGMENT

-----------------

 

1. The plaintiff firm has already obtained judgment against the first defendant firm in the full amount of its claim. That judgment remaining wholly unsatisfied, the present proceedings are between the plaintiff firm and the second defendant company. Such a trial began in March last before the late Creedon, J. and was adjourned. During the adjournment the profession and the parties to these proceedings suffered the untimely loss of Creedon, J., and the hearing before me was de novo.

2. Two issues arise for determination. The first concerns the liability or otherwise of the second defendant company to pay to the plaintiffs any sum over and above the figure of $884,000.00 which it is common ground has already been paid to them. The second issue, which will arise only if such a liability on the part of the second defendant company is established, relates to the quantum so payable. I am informed that the assessment of quantum will involve detailed calculations from scale plans of the amount of steelwork which has gone into an existing 16-storey building, and that the cost of such a survey by quantity surveyors will alone amount to $16,000.00.

3. With a view to a considerable saving of costs in the event of the plaintiffs being unsuccessful on the issue of liability, counsel on both sides asked me to determine the issue of liability before evidence was adduced on that of quantum. As the application was first put to me, I understood that I was being asked to deal first with liability and then to proceed to the question of quantum. On my issuing a caveat to the effect that if that procedure were adopted the parties must not expect to lodge an appeal with the Full Court on the single issue of liability before that of quantum was embarked upon - if indeed they would have any right so to do - it became apparent that counsel were not yet agreed upon the manner in which the issue of quantum (should it ever become a live issue) should be determined and that there was a possibility of this issue going either to arbitration, before a judge with a technical assessor or possibly going before the Registrar.

4. In support of their joint application counsel relied upon Order 33, Rule 4(2) which provides, inter alia, that in an action began by writ one or more issues may be ordered to be tried before the others. I was referred also to the case of Smith & Co. v. Hargrove & Co.⁽¹⁾, where it was held that where liability and also the amount of damages are disputed in an action, and the question as to the amount of damages is one of such detail or nature that it would probably be referred to some other tribunal than a jury, it is a proper exercise of discretion to order the question of liability to be tried and the question of damages to be postponed until afterwards. Reference was also made to the cases of Polskie Towarzys two Handlu Zagranicznego Dla Elektrotechniki "Elecktrim" Spolka Z Ograniczona Olpowiadziolnoscia v. Electric Furnace Co., Ltd.⁽²⁾ and Gold v. Patman & Fotheringham, Ltd.⁽³⁾.

5. It appeared to me that in the present case there existed a clear line of demarcation between the issue of liability and that of quantum and that the evidence required to sustain each of these issues was readily separable. Accordingly, applying the principles contained in the cases to which I have referred and having regard to the fact that the application was a joint application and to the possibility of a considerable saving in costs, I exercised my discretion to try the issue of liability before that of quantum and this decision is concerned only with liability.

6. The second defendant company is the registered owner of the property registered in the Land Office as Section A of Kowloon Inland Lot No.1571. By a written contract dated 27th October 1964 (which I shall refer to as the Principal Contract) the second defendant company contracted with the first defendant firm for the erection by the latter of a 16-storey building on that site. By a further written contract, dated 20th January 1965, which was in the Chinese language (and which I shall refer to as the Chinese Contract) the plaintiff firm contracted with the first defendant firm to carry out the steelwork on the proposed building.

7. The work on the site had a chequered history and at different times during the construction of the now completed building the second defendant gave notice of termination of the Principal Contract to the first defendants and vice versa. The differences arising out of these first two notices of termination were however resolved and I will record only that as a result of the second of them the completion date for the building was agreed to be set back to 20th September, 1966. Eventually the second defendant again gave notice of termination of the Principal Contract to the first defendants and this notice became effective on 3rd September, 1966, before the completion of the building. No other principal contractor was appointed in place of the first defendant firm.

8. The case was opened before me at considerable length. I will endeavour to epitomise, within a relatively short compass the almost one hundred pages of single-spaced typed transcript of the opening addresses.

9. In essence, the issue of liability depends upon the arrangements for payment made between the plaintiffs as subcontractor of the first defendants, the first defendants as principal contractor and the second defendant as site-owner. To arrive at an understanding of those arrangements it is necessary to refer to certain of the documents, comprising more than 300 pages, which were put before the court as four agreed bundles bearing the letters A, B, C & D respectively. I have considered all these documents and would observe that had greater selectivity been exercised upon them, the parties to this litigation would have had their judgment before now.

10. The Principal Contract, which comprises Bundle B, is a lump-sum contract for the erection of the building at a price of $4,692,000.00 and it contains a schedule of payments (page 41et seq.) totalling, oddly, only $4,500,000.00. Under Clause 27 of the Contract, provision is made for the issue of interim payment certificates by the architect to the scheme; thereafter the principal contractor, the first defendant firm, was to be entitled to payment on presentation of such certificates to the site-owner, the second defendant, within the periods of time specified in the Appendix. Under Clause 36, a sum of $100,000.00 was to be deposited by the first defendants with the second defendant as security. Clause 21 contained provision for the second defendant to determine the contract if the first defendants should fail "to proceed with the works with reasonable diligence and in accordance with the programme and time schedule".

11. A feature of the Schedule of payments was that the first defendant firm was to receive no payment, pending the construction of R.C.C. pile caps to the value of about $700,000.00. Although the first defendant's payments were then spread over 41 instalments, only the 1st to the 17th inclusive were the instalments referable to the R.C.C. structure for which the plaintiffs later became sub-contractor.

12. It is apparent from the figures at page 43 of the Principal Contract that the cost of the necessary steel bars for the work which, in the event, the plaintiff undertook to do, would amount to $1,306,180.00.

13. The Chinese Contract is contained in Bundle C (pages 141 to 143). This contract provides for $100,000.00 to be paid to the plaintiff firm on completion of the fixing work in respect of the foundation rods and foundation beams, for 10 separate payments of $50,000.00 each on completion of the reinforcement fixing work to the floor slab of each floor from the mezzanine floor to the 9th floor inclusive and for a further 10 separate payments of $45,000.00 each "from the 10th floor to the slab of the roof". The Contract further provided that all these payments were to be made direct to the plaintiffs by Messrs. Johnson, Stokes, & Master, solicitors for the second defendant.

14. A further Clause headed "Method of Weight Calculation" provided that the weight of the steel used should be calculated according to the scale-plans of the building, and the price for each 100 catties of mild steel round bars was to be $48.00 whilst that for the same weight of high tensile steel round bars was to be $55.00. It would thus appear, and indeed it was the evidence of the plaintiff's and the first defendant's representatives that they did not contemplate that the figure of $1,050,000.00, the total of the instalment payments contained in the Chinese Contract, represented the ultimate sum payable to the plaintiffs but rather that on completion of the work there was to be a final adjustment of accounts on the basis of the weight of steel used, calculated in accordance with the scale-plans of the building.

15. It was intended that the last twenty of the twenty-one payments specified in the Chinese Contract should coincide with and be effected from the first twenty payments due to the first defendant firm under the Schedule to the Principal Contract, it being stated in the Chinese Contract that "Each payment is to be made in accordance with Party A's payment dates.". It is to be observed however that under the Principal Contract the R.C.C. work would be complete at the time of the 17th payment; the 18th, 19th and 20th payments under that Contract relating to brickwork with which the plaintiff was not concerned.

16. A letter (Exhibit E) of the same date as the Chinese Contract, from the first defendants to the plaintiffs, reads as follows:-

	"DEFAG CONSTRUCTION FACTORY
	11, Argyle Street, Kowloon
	Ka Doo Mansions 9th floor A
		20th January 1965

	For the perusal of Yee Sang Metal Materials Company.
	This is to inform (you) that the signing of contract No.65/01 for the iron-binding work at the site of new Ming Tak Middle School tendered to your esteemed company by this factory was temporarily provided for. The amount of wages and the method of payment contained therein shall be calculated according to the total amount of iron (used). A separate contract in the English (language) to be made shall prevail.
	As to the BSS.785 round steel (rods), apart from the price for work done and materials supplied at $48.00 Hong Kong currency per picul as fixed in the contract, I shall personally be responsible to pay an extra $2.00 Hong Kong currency per picul and pay for in full according to the weight of iron-binding work done. If the property owner promises to lend the sum of $250,000.00 to this factory upon the completion of the foundation work at the site, this factory will certainly pay to your esteemed company the sum of $100,000.00 Hong Kong currency.

	(Chopped)
	DEFAG CONSTRUCTION COMPANY
	(sd.) L.S. Koo
	Manager.".

17. This letter contemplates a separate and authoritative version of the Chinese Contract in the English language but no such version was ever executed. The letter also again refers to payment according to the amount of "iron" used, and contemplates that in addition to the tentative prices in the Chinese Contract, there should be a further payment to the plaintiff firm of $100,000.00 if the second defendant should promise to "lend" the first defendants $250,000.00 upon completion of the foundation works - a loan (or advance) which did not materialise. This $100,000.00 is not the same $100,000.00 as that appearing in the Chinese Contract as the first payment to be made to the plaintiff firm.

18. This additional $100,000.00 was not the only proposed variation and addition to the prices contemplated in the Chinese Contract, for by a letter of the 8th February 1965 (Document 150 in Bundle C) the first defendant firm irrevocably authorised Hessrs. Johnson, Stokes & Master, solicitors, (then acting for the second defendant company on whose behalf they were receiving periodical payments from the financiers to the scheme against architect's certificates) to pay to the plaintiffs not only the 10 payments of $50,000.00 each and the 10 payments of $45,000.00 each contemplated by the Chinese agreement, but also to pay to them, from the 21st payment due under the Schedule to the Principal Contract, the further sum of $70,000.00. That 21st payment under the Principal Contract was to be in respect of steel windows and, like the 18th to the 20th, was not referable to any work done or to be done by the plaintiffs.

19. Another variation arose when, by a letter of 14th January 1966 the plaintiffs and the first defendants jointly informed the second defendant that the Chinese Contract between the plaintiffs and the first defendants had been varied in that the plaintiffs were thereafter to receive only $40,000.00 under each of the 7th to 10th payments thereunder and only $36,000.00 under each of the 11th to 20th payments whereas they were to receive $230,000.00 at the time of the 41st and last payment due, under the Principal Contract on the issue of the Occupation Permit. In the result the total amount due to be paid to the plaintiffs under the Chinese Contract as varied, ignoring any final adjustments to be made on the basis of the weight of steel used, was $1,220,000.00. Of this sum $884,000.00 has been received by the plaintiffs.

20. In early February, 1965, there was a meeting at the Handarin Hotel between Mr. Yu, managing partner of the plaintiff firm and Mr. Cheng, managing director of the second defendant company, The meeting was arranged by Mr. Koo, the proprietor of the first defendant firm, but there is a conflict of evidence as to whether Mr. Koo himself was present at the meeting. Following this meeting, the plaintiffs wrote to the second defendant on the 5th of February (148 in Bundle C) in the following terms:-

"Yee Sang Metal Supplies Co. Hong Kong

Room 625 Man Yee Building,

60-68 Des Voeux Road, C.

Hong Kong.

Tel.	22598
	23814
	35981

Dear Sir,

A contract in which our Company contracted for carrying out the work for Defag Construction Company was signed on the 20th January 1965, for all the reinforcement fixing work, including labour and materials, at the site situate at the new Tak Ming Middle School, Kowloon. All high tensile steel (bars) and mild steel round bars for the said project are to be supplied and fixed by our Company according to the plans. In order to protect our interests in (carrying out) the reinforcement work against your repossession of the site for tenders to be called from other building contractors in the event of Defag Construction Company's abandonment (of the construction work) during the course of construction at the said site, we request you, the owner, to give a written guarantee to the effect that, in the case of (the construction work) having to be let out on contract to another building contractor because of Defag Construction Company's abandonment during the course (of the construction), the Agreement for the reinforcement work entered into between our Company and Defag Construction Company shall remain effective. As for the money for labour and materials for the reinforcement work, you, the owner, are requested to be responsible for the payment (of the same) to our Company on the due dates out of the amount of the construction costs (allotted) to the contractor. Please excuse our bluntness in this matter.

To Mr. Cheng Yun Choi.

	(Chopped) (words indecipherable)
	(Signed) Yu Tak Yee.

Dated 5th Feb., 1965.".

21. The second defendant company replied to this letter by a letter of the 9th February, 1965, (152 in Bundle C) as follows:-

"TAK MING COMPANY, LIMITED, H.K.

	No.1 Arran St.
	Kowloon

Tel.	800256
	800063

Hong Kong 9th February, 1965.

Messrs. Yee Sang Hetal Supplies Co.,
Room 625, Man Yee Building,
60-68, Des Voeux Road, Central,
Hong Kong.

Dear Sirs,

Tak Ming Middle School at
K.I.L.1571, S.A., 76, Sai Yee Street, Kowloon.

We acknowledge receipt of your letter of 5th February, 1965, and we wish to confirm to you as follows:

1) In case of the breach of contract No.574 dated 27th October, 1964 from the part of Kessrs. Defag Construction Co., we may by mutual agreement between your goodselves and ourselves continue the contract signed on 20th January, 1965 by your goodselves with Defag Construction Co. even though the said contractor should be forced out of the above site.

2) In case of the failure to reach a mutual agreement between us, we shall pay you for the works done on the captioned site against our architect, Mr. Eric Cumine's certificates in accordance with the Building contract No.574 prepared and signed in the said architect's office.

The above confirmation is subject to your fulfilment of the terms of your contract with Defag Construction Co. mentioned in your letter of 5th February, 1965 addressed to us and also subject to your carrying out works properly and expeditiously in accordance with the Schedule of works submitted to the aforesaid architect and to us by the contractor, Messrs. Defag Construction Co.

	Yours truly,
	Tak Ming Co., Ltd. H.K.
	(sd.) Illegible
	Director.".

22. It is the contention of the plaintiffs that the phrase "We shall pay you for the work done against our architect's certificates in accordance with the building contract 574" confers an obligation upon the second defendant to pay to the plaintiffs the outstanding amounts certified by the architect as relating to work done by the plaintiffs. The plaintiffs, their counsel argues, should not have to wait for their money because the architect has not issued his certificate in respect of work which has nothing to do with them. It is the fact that no architect's certificates were issued in respect of the 20th, 21st and 41st payments scheduled under the Principal Contract and relating respectively to brickwork, window-frames and the issue of the Occupation Permit although in fact, as is common ground, the building has been completed and the Occupation Permit issued. The second defendant, however, argues that the obligation to pay, if any, is to pay upon the certificates of the architect, some of which were never issued, although as already noted, the unissued certificates related to work which had nothing to do with the plaintiffs who had agreed in the Chinese Contract, as varied, to a schedule of payments tied to the Schedule in the Principal Contract in such a manner that the later instalments due to them were only payable upon the completion of work which could not be completed until after all the R.C.C. work was finished. In fact, all the R.C.C. work had been completed by the 5th of July, 1966, the date of the 17th architect's certificate.

23. Side by side with these private arrangements between the plaintiffs and the second defendant, other arrangements were being made through solicitors. I have already referred to the letter of the 8th February, 1965 (150 in Bundle C) from the principal contractor to Messrs. Johnson, Stokes & Master, "irrevocably" authorizing payment by these solicitors to the plaintiffs of, inter alia, 10 sums of $50,000.00 each and 10 of $45,000.00 each and I have related how, despite its description, this authority was amended by the plaintiffs and first defendants by letter of 14th January 1966.

24. It is apparent that the arrangement for payments to the plaintiffs through Messrs. Johnson, Stokes & Master on the authority of the first defendants, the principal contractors, contemplated the continued employment of the first defendants in that capacity whereas the undertaking contained in the second defendant company's letter of 9th February 1965 to the plaintiffs was directed to the situation which would arise should the first defendants cease to be employed by the second as principal contractors. In fact that latter eventuality occurred when the second defendant company served a second notice of termination of the Principal Contract upon the first defendants which became effective upon 3rd September 1966.

25. The plaintiffs rest their case upon the construction of the arrangement reached directly between the second defendant company and the plaintiffs and embodied in the two letters of the 5th and 9th February 1965 set out above. Paragraphs 7 to 12 of the Further Amended Statement of Claim, which purported to rest the plaintiffs' claim on other and alternative grounds including the arrangement for payment through Messrs. Johnson, Stokes & Master, have been abandoned by counsel for the plaintiffs.

26. I have said that the plaintiffs' case rests upon the construction of the two letters of 5th and 9th February 1965 and this was pleaded in the Further Amended Statement of Claim. At one stage Mr. Litton, counsel for the second defendant, elicited from the plaintiffs' managing partner, under cross-examination, the statement that what he was really suing on was an oral promise given by Mr. Cheng of the second defendant company at the Mandarin Hotel. Despite objection by Mr. Litton I permitted re-examination on this matter whereupon the witness said that he was relying on paragraph 2 of the letter of 9th February 1965 from the second defendant company and upon paragraph 13 of his Further Amended Statement of Claim and that he understood paragraph 2 of the letter to mean that if the first defendants discontinued their work under the Principal Contract then payment for all work done on the site by the plaintiffs would become the responsibility of the second defendant company. I would add that re-examination on this point was in any event hardly necessary, for even in its absence I could have attached only minimal weight to the answer of a layman as to the legal foundation of his case. He employs lawyers to put his case upon its feet and his counsel pleaded the letter of 9th February 1965 of set purpose. I could not have allowed that purpose to be set to naught and the plaintiffs' whole case distorted because of the isolated answer of a layman on a technical matter. It is my duty to decide the case in the light of the whole of the evidence and the evidence includes this very important letter and that whether or not the plaintiff firm's representative appears to appreciate its importance. Indeed in his opening speech for the second defendant company Mr. Litton himself very aptly said that I might well place more reliance upon the exchange of letters than on anything said in evidence in court.

27. It is the submission of counsel for the second defendant company that under the Principal Contract one of the obligations of the first defendants was to supply the material for and execute the steel reinforcement fixing work and that the subsequent sub-contract for that work contained in the Chinese Contract could not result in any privity of contract between the second defendant as site-owner and the plaintiff firm as sub-contractors. In support of this argument counsel quoted from Hudson's Building & Engineering Contracts where it is stated⁽⁴⁾ that it cannot be over-emphasised that no privity of contract between the employer and the sub-contractor can arise out of a sub-contract concluded between the main contractor and the sub-contractor. Counsel further supported this argument by reference to a South African case, Concrete Construction, Ltd. v. Keidan & Co. Ltd.⁽⁵⁾ in which the contract between the owners and the principal contractors contained a clause for the nomination of suppliers which was for all practical purposes identical with that in the Royal Institute of British Architects' standard form and in which reinforcement steel was billed as a P.C. item which is explained as an item to be supplied by a nominated sub-contractor. In that case at an interview at which were present a representative of the employer, the architect, the main contractor and the supplier, the latter was asked by the architect to reduce his prices but refused to do so. The supplier stated that he would require a deposit of £3,000 and complained about the main contractor being a slow payer, but was re-assured by the employer's representative who said that a substantial lean had been arranged and that the supplier would be paid monthly on the certificates issued to the main contractor by the architect. Subsequently, the architect wrote to the supplier stating that he accepted the tender on behalf of his clients, the employers, and that on acceptance of "this order" by the suppliers, a sum of £3,000 would be payable to them by the main contractors. The supplier replied stating "Our acceptance of your order is hereby confirmed". On the same day the main contractor wrote to the employer authorizing him to pay the £3,000 and debit the main contractor's account.

28. It was held by the South African Court of Appeal that in view of the language of the main contract, the architect was, for all practicable purposes, constituted the agent of the principal contractor for placing orders with nominated suppliers, and that the inference on the facts, in spite of the correspondence, was that the contract had been made between the principal contractor and the supplier and not with the employers.

29. Applying the facts of that case to the present case, Mr. Litton argued that the suggestion in paragraph 13 of the Statement of Claim that in the event of the ouster of the first defendant firm from the site and a failure to reach an agreement between the plaintiffs and the second defendant company for the continuance of the Chinese Contract as between themselves, the second defendant would pay the plaintiffs for the work done on the second defendant's property, did not accurately summarize the exchange of correspondence. The plaintiffs' letter of the 5th February 1965 to the second defendant company, having posed the hypothesis that the first defendant firm was ousted from the site, went on "As for the money for the labour and materials for the reinforcement work, you, the owner, are requested to be responsible for the payment (of the same) to our company on the due dates out of the amount of the construction costs (allotted) to the contractor.".

30. Counsel argued that the phrase "Out of the amount of the construction costs (allotted) to the contractor" could only refer to the principal contractor, the first defendant firm, and to appreciate what was involved in that request a proper understanding of the engagement under the main contract was of paramount importance. What the request really envisaged was a situation in which the first defendant firm was ousted from the site at a time when it had completed the work due to be paid for under, say, the 9th scheduled payment, but had not received such payment. On the assumption that the plaintiffs had been paid the money due to them out of the first eight scheduled payments, when eventually an architect's certificate was issued in respect of the 9th scheduled payment an appropriate sum was to be deducted therefrom and paid to the plaintiffs, and this, counsel urged, was all the above-quoted sentence asked for. The certificates issued under the Principal Contract were certificates issued in favour of the principal contractor and nobody else, the whole scheme of the Principal Contract being that there were only two parties to that contract, the owner and the contractor.

31. It is counsel's contention that when in answer to the letter of the 5th of February, the second defendant company by its letter of the 9th February, 1965, (152 in Bundle C) wrote:-

"In case of the failure to reach a mutual agreement between us, we shall pay you for the works done on the captioned site against our architect, Mr. Eric Cumine's certificates in accordance with the Building contract No.574 prepared and signed in the said architect's office.",

this was not an undertaking to pay for any and all work done by the plaintiffs on the second defendant company's property as pleaded in paragraph 13 of the Statement of Claim; rather was it an undertaking to pay for works done on the site against the architect's certificates under the Principal Contract. These certificates did not certify the work of the plaintiffs or any other sub-contractor but that of the principal contractor, the first defendant firm, no matter by whom the work had actually been performed. The second defendant's position in the present case was actually stronger than that of the site-owners in the South African case, for in the latter case the site-owners, through their architect, took a direct part in the negotiations leading to the conclusion of the sub-contract, whereas in the present case the responsible officials of the second defendant company and the plaintiff firm had never even met until a few days before this exchange of correspondence, that is at a time long after the plaintiff firm had undertaken a binding obligation towards the principal contractor, the first defendant firm, in regard to the steelwork. Under the Principal Contract the first defendant firm had no right to be paid any money except after the issue of an architect's certificate. Such certificate was a condition precedent to payment under the building contract and all the second defendant company undertook by its letter of the 9th February, 1965, was that in the event of the first defendants being ousted, the second defendant company would make deductions from monies due to the first defendant firm under any outstanding certificate and pay those deductions direct to the plaintiff firm. It was inherently improbable that the construction of the letter pleaded in paragraph 13 of the Statement of Claim could be correct because the Prinoipal Contract was a lump-sum contract, so that the site-owners had no particular interest in the individual costing of the various items, e.g. steelwork, whereas the Chinese Contract envisaged a final adjustment of payments to the plaintiffs on the basis of the amount of steel used in the building. There was no reason why the second defendant company should assume an unascertained liability in respect of the steelwork.

32. Mr. Swaine, for the plaintiff, countered these arguments by saying that whilst no doubt the principles which have been held to preclude privity of contract between an owner and a sub-contractor are valid in general, there was no reason in law or logic why a building owner should not, if he so chose, contract direct with a sub-contractor. This in fact was what had happened at the Mandarin Hotel and in the letters of the 5th and 9th of February, 1965, which followed that meeting and there was privity of contract between the second defendant company and the plaintiff firm; in January 1965, the second defendant company had every reason to concern itself with the affairs of the first defendants, the principal contractor, since no progress was being made on the site and the site-owners were already paying interest to their financiers on an initial sum of $250,000.00, although that sum had not yet been advanced and was not due to be advanced until further progress was made on the site. Whilst Mr. Cheng of the second defendant company would have the court believe that relations between the second defendant firm and the plaintiffs were no concern of his, there was before the court incontrovertible evidence that he had been concerning himself with the affairs of sub-contractors and had gone so far as to enter into a direct written contract with the sub-contractor for concrete, guaranteeing the first defendant firm's liability to that sub-contractor (Pioneer Co., Ltd.) to a limit of $300,000.00, a guarantee which was subsequently enforced after the dismissal of the first defendant firm from the Principal Contract. By February, 1965, the second defendant company was in an unenviable position in regard to its proposed building and directly involved itself with the plaintiffs in much the same way as it had done with Pioneer Co., Ltd., with the difference that the latter company had had the sense to obtain a formal written guarantee whereas the relationship between the second defendant company and the plaintiff firm depended upon the construction of letters written between laymen. Mr. Koo of the first defendant firm had given Mr. Cheng of the second defendant company a copy of the Chinese Contract, the reason for that being, according to Mr. Koo, that Mr. Cheng had expressed interest and a wish to see it, whereas Mr. Cheng's version was that he had to see the sub-contract before he could comply with Mr. Koo's request to release to the plaintiffs the $100,000.00 which had been deposited by the first defendant firm as security with the second defendant company; the latter explanation was unconvincing, because Mr. Cheng had said in evidence, as his counsel had said in opening, that it did not matter to the second defendant to whom they paid the monies due under the building contract so long as they had the first defendant firm's authorization for such payments.

33. According to the evidence of Mr. Yu of the plaintiff firm, counsel continued, he had obtained, at the meeting at the Mandarin Hotel, a promise from Mr. Cheng that the Chinese Contract would remain effective should the first defendant firm be ousted from the site, and obtained the further assurance that whilst the latter firm remained the principal contractor there would be paid direct to the plaintiff firm appropriate amounts out of the scheduled payments; when Mr. Yu wrote his letter of the 5th of February, 1965 (148 in Bundle C), he asked the second defendant firm for a written guarantee that the Chinese Contract would remain effective in the event of the ouster of the first defendant firm and, what is of more importance to the present case, went on to request that the second defendant company should be responsible for payment to the plaintiffs of construction costs out of monies allotted to the first defendant firm; in evidence, Mr. Yu said that this embodied his request at the Mandarin Hotel that as long as the first defendant firm remained the principal contractor, the second defendant company would continue payment to the plaintiffs out of the scheduled payments and, counsel argued, if that evidence is accepted, there is no room for the construction of paragraph 2 of the reply of the 9th of February, 1965, (152 in Bundle C), which counsel for the second defendant urged.

34. On the other hand, Mr. Cheng's version of the request as to payment contained in the plaintiffs' letter of the 5th of February, (148 in Bundle C) was that it embodied Mr. Yu's request that should the first defendant firm be ousted and the Chinese Contract not continued, or not be doemed to continue between the plaintiffs and the second defendant company, then the latter would assume responsibility for payment to the plaintiffs out of the scheduled payments contemplated by the Principal Contract. Such a construction, counsel urged, went contrary to the plain and ordinary meaning of the last portion of the letter read in the context of the whole document, the main purpose of which was to seek an assurance that in the event of the ouster of the first defendant firm from the site, the sub-contract would specifically remain effective; the last portion of the letter was merely a request that in that, the only contemplated event, the second defendant company would be responsible for payment for labour and materials for the R.C.C. work out of the amounts due to any principal contractor.

35. The second defendant company's reply to this letter on the 9th of February, 1965, provided for the contingency that there being no mutual agreement for the continuation of the sub-contract after any expulsion of the second defendant firm from the site, the owner should pay the plaintiff sub-contractors for the work they had done and obtain architect's certificates in respect thereof.

36. In support of this construction, the evidence of Mr. Yu of the plaintiff firm as to the meeting at the Mandarin Hotel was that he asked Mr. Cheng of the second defendant company to hold himself responsible for payment to the plaintiffs for the work done by them under the Chinese Contract with the first defendant firm and also that if the building work should be transferred to another contractor, the Chinese Contract entered into between the plaintiffs and the first defendant firm should remain effective. His letter of the 5th of February, Mr. Yu said, contained two requests, the first being for a written guarantee that if the building work was transferred to another principal contractor, the Chinese Contract should remain effective, and the second being that in the event of the first defendant firm remaining as principal contractor, then from the amounts due and payable by the second defendant to the first defendant, the sums due to the plaintiffs for their work should be deducted and paid to the plaintiffs.

37. According to Mr. Yu, Mr. Cheng agreed positively at the Mandarin Hotel to the continuation of the Chinese Contract should the first defendant firm cease to be the principal contractor, and in saying, in his letter of the 9th February, 1965, that in such an eventuality "we may by mutual agreement between your goodselves and ourselves continue the contract signed on the 20th of January, 1965, by your goodselves with Defag Construction Co.", Mr. Cheng was going back on his oral agreement at the Mandarin Hotel. His principal object at the Mandarin Hotel, according to Mr. Yu, was to ask Mr. Cheng to undertake to pay the plaintiffs all the money for work done by the plaintiffs on behalf of the first defendants in the event of the Principal Contract being discontinued.

38. There is a conflict of evidence as to whether Mr. Koo of the first defendant firm was or was not present at this meeting at the Mandarin Hotel. I find it unnecessary to resolve this conflict because Mr. Koo's evidence as to what is alleged to have transpired at the meeting is of no particular assistance and the main protogonists upon this issue are Mr. Yu of the plaintiff firm and Mr. Cheng of the second defendant company.

39. Mr. Cheng (who claimed that Mr. Koo was not present at the meeting) said that Mr. Yu's first request to him was that the second defendant should pay the plaintiffs direct instead of through the first defendant firm and that Mr. Yu went on to discuss the position which would arise should the first defendant firm be ousted from the site and requested that in that event Mr. Cheng should consider continuing the Chinese Contract as between the second defendant company and the plaintiffs. According to Mr. Cheng, he replied that he could not adopt any contract between the plaintiffs and the first defendant firm but that should the latter cease to be the principal contractors he might consider a new approach to the plaintiffs, his idea being that, in such circumstances, he would study the Chinese Contract and if he found it acceptable, continue upon that basis with the plaintiffs, whereas if that contract was not acceptable, new terms might be negotiated with the plaintiffs.

40. The witness, after first agreeing that at the Mandarin Hotel meeting, and indeed as early as the 20th of January, 1965, when Mr. Koo had given him a copy of the Chinese Contract, he appreciated that this contract amounted to a method whereby the plaintiffs were financing the first defendant firm, subsequently retracted this answer and claimed that he did not appreciate this until approximately six months later. Mr. Cheng further said that in the event of failure to agree upon the continuation of the Chinese Contract, he agreed that the second defendant company would pay the plaintiffs for the work done by them but only from monies which they had availed to pay the first defendant firm and subject to authorization by Mr. Koo of that firm; that be made no firm promise that in the event of the first defendant firm being expelled from the site, he would continue the Chinese Contract with the plaintiffs but he did ask Mr. Yu to write to him on this topic. When Mr. Yu wrote his letter of the 5th of February, he was asking for a written guarantee that in the event of such expulsion, the Chinese Contract should continue - and this was a request which had already been refused at the meeting at the Mandarin Hotel. Mr. Cheng was unable to agree that the only other matter (apart from a guarantee of the continuation of the Chinese Contract) which Mr. Yu had raised with him, was that if the first defendants remained as principal contractors, then the second defendant would pay the plaintiffs out of the allotted construction costs. That request as to payment also contemplated a situation in which the first defendants had ceased to be the principal contractors.

41. The second paragraph of his letter of the 9th of February, 1965, Mr. Cheng said, meant no more than that if, on the termination of the first defendant firm's contract, work had been performed by them which was not yet the subject of an architect's certificate, then the plaintiffs would be paid in accordance with the work they had done when the architect's certificate was available and in accordance with the scheduled payments to be made to the first defendants. The witness was at first unambiguous that he was not promising to pay for the work done in accordance with the schedule of payments in the Chinese Contract.

42. It was noticeable that in regard to the interpretation of this paragraph of his letter of the 9th February, 1965, Mr. Cheng shifted his ground more than once. Thus having at first said that he was not promising to pay for the work done in accordance with the schedule of payments in the Chinese Contract which "did not concern the second defendant", he subsequently said that what he had in mind was that he might have to pay to the plaintiffs the monies specified in the schedule to the Chinese Contract, subject to Mr. Koo's authorization. This latter statement accords ill with his earlier one and also with his evidence that at that date he had not familiarized himself with the contents of the Chinese Contract. Moreover this plen of ignorance is in itself in contradiction of the witness's earlier evidence that, having a copy of the Chinese Contract in his possession, he knew what payments to the plaintiffs were envisaged through the solicitors. At another stage the witness said that what he intended to convey was that the second defendant would pay the amounts which Mr. Koo of the first defendant firm authorized. This was apparently said despite the fact that the situation envisaged was one in which Mr. Koo would have dropped out of the picture and of course any such authorization must have been tied to the terms of the Chinese Contract. The paragraph in dispute makes no reference to the Chinese Contract or to authorization by Mr. Koo but promises payment for works done on the site against architect's certificates issued in accordance with the Principal Contract. Again, having first agreed that by this paragraph he was promising the plaintiffs no more and no less than the payments promised by the second defendant's letter to Messrs. Johnson, Stokes & Master of the previous day, he amended this answer in reply to a question as to what, in that event was the purpose of this paragraph, by saying that it was intended also to allay Mr. Yu's fears that in the event of the ouster of the second defendant company from the site, and despite the irrevocable authority given by that firm to the solicitors to pay certain sums to the plaintiffs, those sums might in fact be paid to the first defendants from whom the plaintiffs might have difficulty in extracting their money. This was as far as the witness could go in asserting any difference between the promise contained in his letter and the irrevocable authority granted by the first defendants to Messrs. Johnson, Stokes & Master for payments to the plaintiffs. The witness added that he did not regard the arrangement contained in paragraph 2 of his letter very seriously, considering it to be almost the same as that made through the solicitors.

43. Those conflicting interpretations must be considered in the light of the respective positions of the parties in early February, 1965.

44. The dominating cause, permeating the whole background of the situation in which the parties to this triangle found themselves, was the financial embarrassment of the first defendant firm as principal contractor. That firm had undertaken an onerous obligation in agreeing to perform $700,000.00 worth of work on pile caps before receiving any payment and the position was quickly reached in which little or no work was going on at the site so that Mr. Cheng had constantly to prod Mr. Koo about this. It was the first defendant firm's financial difficulties which caused it to sub-contract the steelwork to the plaintiffs on a basis of payment which amounted to a measure of subsidy by the plaintiffs to the first defendants throughout the duration of the construction of the building. Side by side with the first defendant firm's financial difficulties, the second defendant company was also under some strain in regard to its finances for completion of the building. It had the benefit of a building mortgage and a further charge form the financiers, Henry Fok Estates Ltd., but despite these arrangements found it necessary to enter into an agreement with the first defendant firm whereby 25% of the cost of the building might remain on mortgage. It was Mr. Yu's evidence, and I find as a fact, that at the meeting at the Mandarin Hotel his was not a one-sided approach and that Mr. Cheng was very anxious that the plaintiffs should not withdraw but should continue with the steelwork since the substitution of another sub-contractor might eliminate the measure of finance which was being provided by the plaintiffs to the first defendant firm, the principal contractors. Mr. Cheng, indeed, had every reason to meet Mr. Yu's requests so far as possible and did so by his letter of the 9th of February, 1965.

45. It is no doubt true, as counsel for the second defendant company urges, that no privity of contract between an employer and a sub-contractor arises out of a sub-contract concluded between the main contractor and the sub-contractor. Privity of contract so arising, however, is not the basis of the plaintiffs' claim and for that reason the case of Concrete Construction, Ltd. v. Keidan & Co., Ltd.⁽⁵⁾ is largely irrelevant in the context of this case. To establish privity of contract with the second defendant company the plaintiffs rely, not upon their Chinese Contract with the first defendant firm, but upon the second defendant company's letter of the 9th of February, 1965, addressed to them and in particular upon the second paragraph thereof. I would say at once that in my view that paragraph amounts to the establishment of a direct contractual relationship between the second defendant and the plaintiffs and whilst the cases are not on all fours with the facts of the present case, I have derived same support for this view from Dixon v. Hatfield⁽⁶⁾, Andrews v. Smith⁽⁷⁾ and Smith v. Rudhall⁽⁸⁾ all of which involved a finding of a direct contractual relationship between an owner (or his representative) and a subsidiary supplier. In essence however I rely upon the ordinary and natural meaning of the paragraph.

46. There is some authority for the suggestion that as consideration the plaintiffs could, if necessary, rely upon their implied promise to perform, for the benefit of the second defendant, their existing obligations to the first defendants, in the event of the first defendants ceasing to be the principal contractors (see Bret v. J.S. & Wife⁽⁹⁾, Bagge v. Slade⁽¹⁰⁾, Westbie v. Cockaine⁽¹¹⁾, and Moore v. Bray⁽¹²⁾). Such reliance is however unnecessary, since the plaintiffs can plead actual performance, they having completed all the steelwork within the time specified in the revised schedule of works (see Shadwell v. Shadwell⁽¹³⁾, Scotson v. Pegg⁽¹⁴⁾, and Chichester and wife v. Cobb⁽¹⁵⁾). This revised schedule (Exhibit F) came into existence as the result of an addendum to the Principal Contract (see p.127 of bundle "B") under which the first defendant firm withdrew its notice of tormination of the Principal Contract and agreed to complete the building within 100 days of the execution of the addendum, that is, by 20th September 1966. Under the revised work schedule the new date for completion of the R.C.C. work was 12th July, 1966 and its completion was in fact certified by the architect one week earlier than that date, that is, almost two months before the eventual final dismissal of the first defendant firm from the Principal Contract.

47. Interesting as is the ex post facto construction of the disputed paragraph by the laymen concerned with it, its meaning in the last resort is a matter for the court. The paragraph must be construed in the context of the whole of the letter embodying it and there would appear to be no reason for denying to the words of the disputed passage their ordinary and natural meaning, to which I now turn.

48. When the Principal Contract was terminated and the first defendant firm ousted from the site, the Chinese Contract, in so far as it remained unperformed, became incapable of performance in that no further architect's certificates would be issued to the first defendant firm so as to support the schedule of payments in the Principal Contract - and the payments under the Chinese Contract were dependent upon payments being made to the first defendent firm under the Principal Contract.

49. At the date of the first defendants' ouster however, all the R.C.C. work had been completed and had been certified by the architect as having been completed by or on behalf of the principal contractor who had been paid 75% of the price thereof.

50. Applying these facts to the paragraph the construction of which is so hotly disputed, the undertaking was to pay the plaintiffs for "the works done on the captioned site" and this can only refer to work done by the plaintiff firm. The work which had been so done was the whole of the steelwork. Payment, it is to be noted, was to be "against our architect, Mr. Eric Cumine's certificates in accordance with the building contract". Such certificates had been issued in accordance with the Principal Contract in respect of the whole of the steelwork. It seems to me that if, as Mr. Litton argues, the undertaking was to pay for work which had been completed at the date of ouster of the first defendants but which had not yet been certified by the architect under the Principal Contract, then a fortiori the undertaking embraced work which had not only been completed but had also been so certified. Moreover the undertaking was not to pay a proportion of the cost of the work done or to pay in accordance with the payments laid down in the Chinese Contract between the plaintiffs and the first defendants, but simply "to pay for". In other words, in the events which happened, the undertaking was to pay for all the steelwork covered by architect's certificates Nos. 1 to 17, that is, for the whole steelwork in the building with the Tinor exception of a cover to a water-tank which, the plaintiffs say, they have been unable to install because the second defendant would not permit them access to the roof for that purpose.

51. This appears to me to be the plain and ordinary meaning of the paragraph in dispute and it is immaterial that no architect's certificates 20, 21 and 41 were ever issued. These were intended to relate to work other than steel work and the agreement which the plaintiffs made to accept deferred payment of part of the money due to him for steelwork and for such deferred payments to be tied to the issue of architect's certificates for the completion of later work with which he was not concerned, was an agreement not with the second defendant company but with the first defendant firm. So far as the second defendant company is concerned its undertaking was to pay for work done on the site by the plaintiffs against architect's certificates. That work having been done and the relevant certificates having been issued, the liability of the second defendant company is complete. Its obligation is to pay to the plaintiffs any balance found to be due to them in respect of the work done on the site by the plaintiffs and the yardsticks to be used in the calculation of such a balance, if any, are the prices for mild steel bars and high tensile steel bars specified in the Chinese Contract the contents of which were available to Mr. Cheng at the time he wrote his letter of the 9th February 1965.

52. Moreover, I am satisfied that despite Mr. Cheng's present evasiveness, that construction accords with his intentions at the time he wrote the letter. There is evidence that he was concerning himself actively with the affairs of sub-contractors because he distrusted the ability of the first defendants to bring the Principal Contract to a successful conclusion. Thus by a letter of 6th July, 1965, (document 164 in C) addressed to the first defendants, after referring to an approach which the second defendant had made to the financiers for the accommodation of the first defendants, he continued" we are now even trying very hard to obtain other sources of financial aid in order to help you out of this difficult situation apart from the supports we have given to you regarding metal supplier and concrete supplier.". It is the fact that the second defendant had given an actual guarantee limited to $300,000.00 to the concrete supplier and the general tenor of this letter underscores the extent to which the second defendants were prepared to go in order that the construction work could proceed. Again in a letter of the 23rd July, 1965, to the architect the second defendants said "we were aware of the contractor's unsound financial position, therefore, we have gone so far as to give our guarantee to the metal supplier and concrete supplier for credit facilities entrusted to the contractor.". From these words it would appear that however Mr. Cheng now construes his letter of the 9th of February, 1965, in the middle of that year, he was under no illusions as to what he had promised the plaintiffs. His further letter of 1st February 1966 (Document 184 in C) is a flat contradiction of his evidence that he took no part in persuading the plaintiffs to accept deferred payments.

53. It is significant also that when by their letter of the 7th September, 1966 (document 287 in C), the plaintiffs sought payment from the second defendants of the amounts due to the plaintiffs from the first defendants at the date of the termination of the Principal Contract, the reply from the second defendants (document 290 in C) was to the effect that they were not "at present" in a position to make proposals for payment or to confirm "the outstanding figures", whereas the reason for refusal to pay which was embodied in Messrs. Johnson, Stokes & Master's letter of the 18th of October (document 296 in C) to Messrs. Hastings & Co., solicitors, was that the plaintiffs had failed to comply with the conditions set out in the final paragraph of the second defendant's letter to the plaintiffs of the 9th of February, 1965. The suggestion at that time was not that the second defendant company was under no obligation of any kind to pay but that the plaintiffs were in default in the expeditious completion of the work and had not, in fact, completed in accordance with the schedule of works. That argument falls to the ground when it is appreciated that the schedule of works was amended to provide for completion of the R.C.C. work by the 12th July, 1966, whereas the architect's certificate, No.17, certifying the completion of all R.C.C. work was dated the 5th of July, 1966.

54. It was the case that at the date of execution of the Chinese Contract the first defendant firm was indebted to the plaintiff firm in the sum of $167,000.00. Some attempt was made by counsel for the second defendant company to suggest that the revision of the figures of the Chinese Contract from $1,050,000.00 to $1,220,000.00 by the addition of the two figures of $70,000.00 and $100,000.00 respectively was a subterfuge whereby the plaintiffs were to receive their $167,000.00 at the expense of the second defendants. The suggestion is speculative in the extreme and it does not bear scrutiny in the light of the fact that the Chinese Contract specifically provided for payment on the basis of the weight of steel incorporated into the building as assessed by reference to the scale plans. It was also the evidence of both Mr. Yu and Mr. Koo that each appreciated upon the signing of the Chinese Contract that $1,050,000.00 was an inadequate figure inserted for convenience because it could be made to tally with payments due to the first defendant firm under the Principal Contract. It will be recalled that Exhibit E, the letter providing for an additional payment to the plaintiffs of $100,000.00 should the financiers agree to an advance of $250,000.00 upon the completion of the foundation works, came into existence simultaneously with the Chinese Contract. I do not consider that even if the suggestion of the invention of an underhand method of paying the $167,000.00 had any substance, it would be material, except as to credit, upon this issue of liability and I am not at the moment concerned with quantum. In any event, I find the suggestion to be wholly, without foundation.

55. Another contention on behalf of the second defendant company was that if it was to be held liable to the plaintiffs under their present claim, the result would be that the second defendant company was being made to pay twice on the architect's 17th certificate relating to the completion of the R.C.C. work. Were that contention valid, I think the answer to it would be that if a person binds himself to pay twice for particular work, there is no reason why he should not be held to his undertaking. In fact, however, the suggestion of double payment goes much too far, since, for example, under the Principal Contract foundation work valued at $700,000.00 was not to be paid for upon its completion but the payments were to be spread over 41 instalments culminating with the issue of the Occupation Permit; the whole scheme of payments was such that the first defendant firm was financing the work throughout and to a not inconsiderable extent; further, the schedule of payments provided only for payment by the second defendant to the first of 75% of the amount shown in each architect's certificate and the remaining 25% was not to be payable until, at the earliest, the completion of the building. There is not evidence before me that this remaining 25% has ever been paid so that the suggestion that the second defendant company would be paying twice for the R.C.C. work is by no means established. In any event, this judgment is concerned only with liability, and the issue of quantum will be decided by reference to the amount of steel incorporated into the building. There is thus no possibility of the plaintiffs being paid more than once for their work and even if it should transpire that the second defendant has put itself in a position where it has to pay, between two different, parties, something in excess of 100% of the value of the R.C.C. work, the plaintiffs are not to be held responsible for that situation.

56. Finally, the plaintiffs' claim includes a fixed sum of $3,000 in respect of transportation charges incurred at the commencement of the reinforcement work. This item was said by Mr. Yu of the plaintiff firm to have been incurred because "they" had left no room at the site to bend the metal in the manner necessary with the result that the metal rods had to be removed elsewhere for this processing and thereafter re-transported to the site. There was no elaboration of the term "they" but it would appear that it was the responsibility of the first defendants, the principal contractors, to ensure conditions at the site suitable for the various sub-contractors to carry out their work and the failure of the first defendants to establish such conditions for the bending of metal rods has not been shown to be in any way attributable to the second defendant whom I find to be free from any liability under this head of damage.

57. The second defendant company is however liable to the plaintiff firm for the balance, if any, of the price of work done on the site by the plaintiff firm in excess of the sum of $884,000.00 already received by the plaintiffs. The amount of any such balance is a matter for future determination and, at counsel's request, there will be liberty to either side to apply for directions regarding the manner of such determination. Costs to the plaintiff firm.

 

Representation:

Swaine (Hastings & Co.) for Plaintiffs.

Litton (Johnson, Stokes & Master) for 2nd Defendant.

Judgment handed down.

 

 

(1) 16 Q.B.D. 183.

(2) 1956 (2) ALL E.R. 306.

(3) 1958 (2) ALL E.R. 497.

(4) 9th Edition, p.579.

(5) 1955 (4) S.A.L.R. 315.

(6) (1825) 2 Bing. 439.

(7) (1835) 2 C., M. & R. 627.

(8) (1862) 3 F. & F. 143.

(9) (1600) Cro. Eliz. 755, pl.20.

(10) (1616) 3 Bulst., 162.

(11) (1631) 1 Vin. Abr. 312, pl. 36.

(12) (1633) 1 Vin. Abr. 310, pl.31.

(13) (1860) 9 C.B. (N.S.) 159.

(14) (1861) 6 H. & N. 295.

(15) (1866) 14 L.T. 433.