ONWAY ENGINEERING LTD v. CHINNEY CONSTRUCTION CO LTD

Date of Hearing: 1 June 2007

Date of Judgment: 1 June 2007

Date of Hearing: 1 March 2007

Date of Handing Down Judgment: 30 March 2007

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Muttrie given on 9 November 2005.  The matter before the judge was a claim for damages in respect of building works which had been carried out.  The judge dismissed the plaintiff’s claim with costs.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2.  The defendant was an approved contractor for Government maintenance contracts.  In November 2000 the Architectural Services Department (“ASD”) invited tenders for eight maintenance term contracts.  As the judge found, this attracted the attention of personnel in, amongst others, Shun Cheong Electrical Engineering Co. Ltd (“SCEE”).  That company was a subsidiary of Shun Cheong Holdings Ltd.  Albeit it was an approved electrical contractor, it was anticipated that it would be of advantage if it were able to undertake ASD maintenance term contract work.  Since the chairman of Shun Cheong Holdings Ltd was also the chairman of the defendant, the idea was hit upon to “use” the defendant’s licence.  Again as the judge recorded, it was agreed that an experienced builder would be brought into the arrangement.  It thus came about that the members of the Ng family, who owned two companies that had carried out Government maintenance sub-contract work before, would be involved.  It was agreed that the Ng family would take up 49.9% of the project whereas SCEE would take up 50.1% of the interest in the team that was to “borrow” the defendant’s licence.  The defendant’s licence would be “borrowed” and the defendant would be entitled to 2% as a management fee.

3.  The corporate vehicle which these parties used was Shun Wing Construction and Engineering Co. Ltd (“Shun Wing”).  That company was not incorporated until 4 April 2001.  The incorporation documents were filed at the Companies Registry on the previous Friday, 30 March.

4.  The judge heard evidence from relevant witnesses both from the plaintiff, the defendant and Shun Wing.  He did not accept the evidence of any of the witnesses in full.  Indeed he expressed his reservations about it.  Nevertheless, he formed his own views as to what took place and, as a result, he came to the conclusion that the plaintiff, too, had wanted to become involved in maintenance contract work for the Government.  The judge held as a fact that there were two meetings at which the plaintiff’s involvement was discussed.  The first was on 20 March 2001 when Mr Ken Ng of the plaintiff met representatives of SCEE at the Miramar Hotel in Tsimshatsui.

5.  The second was the Harbour View Seafood Restaurant in Tsimshatsui East on 30 March when there was a dinner to celebrate the fact that two contracts had been awarded.  After carefully scrutinising the evidence the judge accepted that Mr Ken Ng was told that if the plaintiff wished to be a sub-contractor under one of the contracts it would be with Shun Wing.  Again the judge held that Mr Ken Ng must have known as at that date about the licence “borrowing” agreement and that Shun Wing was to be the licence “borrower”.  It is accepted that the contract upon which the plaintiff’s claim rests was entered into on the following day.

6.  The curious feature of the contractual document upon which the plaintiff’s case is based is that the parties to that contract were not specifically named.  The contract commenced:

“Tender

To: Chinney Construction Co. Ltd (or the nominated company) (hereinafter called ‘the Company’)

Sub contractor company: Sub-contractor:

Contract No.: Fax No.:

Sub Contract: Maintenance Contract TCK011 under the Architectural Services Department ...

Terms of Sub Contract

1.  Except for the works for which the Company is responsible, the sub-contractor shall, in accordance with the obligations and the duties of the Main Contractor which are within the scope of the Sub-Contract, complete all the Sub Contract works.”

The judge set out the terms of their contract in paragraph 10 of his judgment and it suffices for present purpose to cite the opening terms thereof.

7.  On the basis that the contracting party was not the defendant but was Shun Wing the judge dismissed the plaintiff’s claim.  He went on, however, to hold that the plaintiff’s sub-contract had been wrongly terminated and that the plaintiff would otherwise have been entitled to damages for that wrongful termination and for its unpaid fees.

This appeal

8.  On this appeal Mr Chan, who appeared on behalf of the plaintiff, took as his first point that at the time of the formation of the contract, namely 31 March 2001, Shun Wing had not been incorporated.  In those circumstances, the sub-contract must be taken to have been made between the plaintiff and the defendant.  In this context reliance was placed on section 32A of the Companies Ordinance Cap. 32 which reads:

“(1) Where a contract purports to have been made in the name or on behalf of a company at a time when the company has not been incorporated-

(a) subject to subsection (2) and any express agreement to the contrary, the contract shall have effect as a contract entered into by the person purporting to act for the company or as agent for it, and he shall be personally liable on and entitled to enforce the contract accordingly;

(b) the company may, after incorporation, ratify the contract to the same extent as if it had already been incorporated at that time and as if the contract had been entered into on its behalf by an agent acting without its authority.

(2) Where a contract is ratified by virtue of this section, the person who purported to act for or on behalf of the company in making the contract shall not thereafter be under any greater liability than he would have been if he had entered into the contract on behalf of the company as an agent acting without its authority and after its incorporation.”

9.  Whether or not the provisions of the section have been satisfied must, it seems to me, turn on the facts.  It is the defendant’s case that the judge found as a fact that the plaintiff knew before it entered the sub-contract that it would have to enter a sub-contract with Shun Wing if it were to undertake the maintenance contract work.  The contractual document states that the contracting party is the plaintiff or the nominated company.  Mr Chan did not argue otherwise than that the company had to be nominated either before or at the time that the contract was concluded.  On the judge’s finding of fact Shun Wing was nominated prior to the contract being entered.  There is no doubt that Shun Wing did ratify the contract.  The judge’s findings of fact in relation to what took place after 31 March 2001 leave no room for doubt about it.  Indeed, it was not argued that if the findings of fact stood they would not have constituted such ratification.

10.  Although the notice of appeal and the skeleton arguments on behalf of the plaintiff did raise questions as to whether the findings of fact by the judge should stand, in argument Mr Chan was really driven back to say that the judge could have come to different conclusions.  The fact that a judge could have come to a different conclusion on a fact is not a ground upon which this court can interfere with that finding of fact.  It would have to be shown that the judge was clearly wrong.  It was no doubt that this reason that that aspect was barely touched upon in argument.

11.  In the circumstances I have no doubt that this appeal must be dismissed.  I would make an order nisi of costs in favour of the defendant.

Hon Le Pichon JA:

12.  I agree.

Hon Chu J:

13.  I agree.

Mr Kenneth CL Chan & Mr Raymond WN Tsui, instructed by Messrs Rowdget W. Young & Co., for the Plaintiff/Appellant

Mr Peter Clayton SC, instructed by Messrs Wong & Fok, for the Defendant/Respondent