ETERNITY CONTRACTING & ENGINEERING CO LTD v. THE JARDINE ENGINEERING CORPORATION, LTD

HCCT 33/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 33 OF 2007

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DECISION ON COSTS

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1.  I have dismissed the plaintiff’s claim on 17 November 2016 with a costs order nisi that the plaintiff do pay the defendant the costs of this action. The defendant has issued a summons on 29 November 2016 seeking to vary the costs order nisi to (i) an order that the plaintiff do pay the defendant’s costs of this action on an indemnity basis or alternatively (ii) an order that the plaintiff do pay the defendant’s costs of this action from the date of the writ to 11 May 2016 on a party and party basis and thereafter on an indemnity basis.

The judgment

2.  The plaintiff claimed HK$4,372,180.8 plus interest and costs allegedly for supply of labour and materials to the defendant to carry out plumbing and drainage installation works (“P&D works”) in the KCRC East Rail Extensions Contract Nos. TCC 200 and TCC 300 (“the KCRC contracts”). 

3.  The plaintiff claimed that it had an agreement with the defendant which was made by an Instruction to Sub-contractor (“ITS”) issued by the defendant to the plaintiff and dated 12 September 2003 and contained or evidenced in the plaintiff’s quotations and invoices made on various dates.  By this agreement, the plaintiff agreed to and did supply labour and materials to carry out the P&D works for the defendant at the four train stations namely: City One, Ma On Shan, Shek Mun and Wu Kai Sha train stations under the KCRC contracts.  All the invoices and quotations for the P&D works pursuant to this agreement had been duly served on the defendant on various dates.

4.  The defendant’s position was that the ITS had no contractual effect and there was no agreement between the parties.  

5.  I decided in the judgment that the ITS was only a conditional contract and would only be effective after the defendant had issued a Work Order to confirm it.  Before a Work Order was issued and whilst it was conditional, neither party had any obligation to render any performance to the other side pursuant to it.  Even if the plaintiff should have supplied labour under it, the defendant would have no obligation to pay for the service.  I therefore dismissed the plaintiff’s claim for costs for supply of labour on this ground.  (§§ 95 - 99 of the judgment)

6.  Since the plaintiff’s claim for costs of materials was pleaded on the same basis, I also dismissed the plaintiff’s claim for labour and materials on this ground.  (§ 100 of the judgment)

7.  Furthermore and assuming that I was wrong on the above ground for dismissing the claim, I also found the plaintiff’s evidence dubious and unreliable.  The evidence as corroborated by the defendant’s evidence only proved that some of its workers had worked at the Sites on some days.  But there was no reliable evidence to show how many workers had worked on what dates at which of the stations.  (§ 195 of the judgment)

8.  I also found that the plaintiff’s claim was full of exaggerations and fabrications.  There was no evidence that the plaintiff was financially capable to defray the alleged payments to the workers and for the purchase of the materials.  The evidence of its two witnesses Mr Chung and Mr Leung were incredible and unbelievable.  Mr Chung (PW2) painted a most curious situation that even Mr Leung (PW1) had not witnessed in his working life since the 1970s.  Mr Leung had also failed to explain many oddities that involved him.  I did not accept that Mr Leung had sent the plaintiff’s invoices (quotations) and the purported annexures (including the monthly summary of attendance by workers and the daily worker records) to the defendant’s head office.  I also did not accept that the plaintiff had paid the workers whether directly or through its worker Chan or at all.  The plaintiff’s lack of financial and accounting evidence was fatal to the plaintiff on this point.  I found that the plaintiff had not proved its case on a balance of probability.  I took the view that the plaintiff was trying to perpetrate a dishonest claim in this action.  (§§ 196 - 197 of the judgment)

The defendant’s grounds for varying the costs order nisi

9.  Mr Niehorster, counsel for the defendant submitted that the plaintiff should pay the defendant’s costs of this action on an indemnity basis because the plaintiff had pursued a dishonest, or at best, dishonestly exaggerated claim. 

10.  Mr Niehorster further referred to Choy Yee Chunv Bond Star Development Ltd [1997] HKLRD 1327 where the Court of Appeal held that an order for indemnity costs was appropriate when the plaintiff pursued a bogus claim intending to exert pressure on the respondent to pay as much as much compensation as possible and to well above that which he was otherwise entitled.  Mr Niehorster further referred to my factual findings and submitted that the plaintiff was also pursuing a bogus claim with a view to extract from the defendant as much compensation as possible where any claim was on the facts well above that which was otherwise merited as a matter of law.  He also categorized the plaintiff’s conduct as the kind of vexatious and oppressive conduct that the indemnity costs was designed to apply.

11.  Mr Niehorster also submitted that if an order for indemnity costs is not made, the defendant’s successful outcome in the action would be seriously eroded. 

Discussion and decision

12.  Apart from considering the plaintiff’s conduct, I must not overlook the defendant’s conduct and how this claim could have come about. 

13.  From September 2003 to November 2004, the defendant had to carry out P&D works in four train stations pursuant to the KCRC contracts.  It had to station at least two workers per station throughout this period.  Though its JEMIS system did not record the plaintiff’s existence until very late, it does not mean that it was not aware that there was and must have been someone supplying labour to it to do the work in the four stations as it needed such labour to do the work. 

14.  There was also a letter from its superior sub-contractor JCO dated 19 March 2004 that complained that it was slow in its work progress to ensure completion because of the unreasonably low labour supply to complete the installation and subsequent testing and commissioning (D9/4290-4291).  It must therefore have taken some action to rectify the problem after the receipt of the letter.  It therefore must know that a labour supply sub-contractor was supplying labour to it.  Otherwise, who would finish the installation and commissioning? 

15.  The defendant had also been supplied by the plaintiff a copy of the employee’s compensation insurance policy that had expired on 14 April 2005 (D10/4680-4685).  Its Manager–Administration Services had written to the plaintiff reminding the plaintiff of the need of renewal.  It therefore must have known about the plaintiff’s supply of labour to it as it was concerned that the plaintiff should have an effective EC insurance policy.  The policy must have been provided sometime before November 2004 when the plaintiff was still supplying labour to the defendant (§89 of the judgment).  Though I did not allow the plaintiff to rely on this policy to advance its claim, it does not mean that the provision of this policy by the plaintiff to the defendant can be ignored for all purposes. 

16.  Furthermore, the defendant had applied to its superior sub-contractor JCO for payments for completion of work during the period of September 2003 to November 2004 when the plaintiff was the only labour supply contractor that supplied labour to it.  It made the following payment applications (by reference to table D1) (T5/85/12 – 86/3) (§143 of the judgment):

(i) The defendant made payment application No. 4 dated 8 August 2003 for payment for completion of 68% of its original scope of works it achieved up to the end of July 2003 (before the appearance of the plaintiff). 

(ii) The defendant payment application No. 5 at the end of November 2003 for completion of 80% of the works. 

(iii) The defendant made another payment application by the end of February 2004 for completion of 89% of the works. 

(iv) The defendant made payment application No. 6 at the end of May 2004 for completion of 97%.

17.  The defendant’s management must have been aware that there was somebody supplying labour to do the work for it.  Otherwise, it would not have been able to apply for payment from JCO for completion of the works.  Mr Lam, counsel for the plaintiff also referred to a contract booking form dated 21 September 2004 (D4/3048-3049) which recorded an expected profit of HK$103,450.84.  The form stated that the subcontractor’s cost was at HK$2,129,148.16.  That was only HK$7,200 more than the subcontractor’s cost of HK$2,121,948.16 as recorded in JEMIS as at 27 September 2003 (D4/3033).  Mr Lam submitted that it was impossible for the defendant to have incurred just HK$7,200 subcontractor cost in the course of a year when a lot of work had been done in the meantime.  These submissions show that the defendant must have been aware that it had not paid the labour supply sub-contractor for the supply of the labour that did the work referred to in its payment applications (§158 of the judgment).

18.  The defendant’s management could not have been so ignorant as to think that work was being done so that it could claim payment from JCO but without the need for it to pay for the workers.  They must have ignored the need to pay the labour supply sub-contractor or at least put a blind eye to it.  That was irresponsible to put it mildly.

19.  The above shows that the defendant had paid no regard to the need for ascertaining how much was due to its labour supply sub-contractor and its obligation to make proper payment.  It is impossible and the defendant’s management could not have been so ignorant to assume that the labour supply sub-contractor could just supply the labour without the need to be paid payment.  If there was no payment application from the sub-contractor, then there must be something wrong and possibly gravely wrong.  They should investigate.  They could not have sit back and relaxed.  To ignore its obligation to pay and the due discharge of such obligation is mismanagement to say the least. 

20.  The undesirable situation in this action where the plaintiff had supplied some labour force but is not getting paid for it at all is partly created by the irresponsible attitude and mismanagement of the defendant. 

21.  Regarding whether the defendant’s successful outcome in the action would be seriously eroded even if I do not order indemnity costs, though the defendant did not intend to benefit from the plaintiff’s labour supply without paying, it ended up getting the benefit without the need to pay for it (save the HK$258,170 paid in the labour dispute).  The period of labour supply was from September 2003 to November 2004.  The minimum labour supply was to provide for two workers for each of the four stations for six days in a week.  The rate per worker was HK$700 per day.  The benefit to the defendant, though unintended, is very substantial.  The defendant is already in an advantageous position.  It has benefitted itself substantially by its irresponsible attitude and mismanagement. 

22.  The plaintiff has suffered in not getting paid for the labour it supplied to the defendant.  To order indemnity costs will be too grave a punishment to the plaintiff.  Punishment is not the purpose of the civil courts.  I do not think I should punish the plaintiff in this case by ordering indemnity costs.  The defendant will not suffer even if it does not get indemnity costs.  The defendant’s successful outcome in the action would be seriously eroded even without indemnity costs.

23.  The defendant has an alternative application in reliance on Order 23 rules 1, 3, 4 and 5 for indemnity costs from 11 May 2016 based on the sanctioned payment it paid into court on 13 April 2016.  For the reasons given above, I consider it unjust to so order. 

Order for payment out

24.  The defendant also seeks in the summons an order for payment out of the $2 million paid into court by it on 13 April 2016 together with all interest accrued.  The plaintiff does not oppose this part of the summons.  I therefore make an order that the $2 million paid into court by the defendant on 13 April 2016 together with all interest accrued be paid out to the defendant’s solicitors forthwith.

Order

25.  In the light of my reasoning above, I dismiss this application for variation of the costs order nisi with a costs order nisi that the defendant do pay the plaintiff the costs of this application.   

HCCT 33/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 33 OF 2007

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J U D G M E N T

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The claim

1.  The plaintiff alleges that it was a labour supply subcontractor of the defendant in the plumbing and drainage installation works (“P&D works”) in the KCRC East Rail Extensions Contract Nos. TCC 200 and TCC 300 (“the KCRC contracts”).  It claims from the defendant HK$4,372,180.8 plus interest and costsallegedly for supply of labour and materials to the defendant to carry out the P&D worksinthe KCRC contracts.

2.  The plaintiff claims that it had an agreement with the defendant which was made by an Instruction to Sub-contractor (“ITS”) issued by the defendant to the plaintiff and dated 12 September 2003 and contained or evidenced in the plaintiff’s quotations and invoices made on various dates.  By this agreement, the plaintiff agreed to and did supply labour and materials to carry out the P&D works for the defendant at the City One, Ma On Shan, Shek Mun and Wu Kai Sha train stations under the KCRC contracts.  All the invoices and quotations for the P&D works pursuant to this agreement had been duly served on the defendant on various dates.

3.  The defendant was a subcontractor of Jardine-China Overseas Joint Venture (“JCO”).  JCOwas an E&M subcontractor of the Main Contractor NECSO-China State-Hip Hing Joint Venture (“the Main Contractor”).

4.  The sum of HK$4,372,180.8 is the total of the sums of 15 quotations and invoices at HK$4,630,350.80 for supply of labour and materials less HK$258,170. The sum of HK$258,170 had been paid by the defendant to the plaintiff’s workers for and on behalf of the plaintiff in a labour dispute that took place at the end of November 2004.

The defence

5.  The defendant admitted that it had issued the ITS to the plaintiff, but pleaded that the ITS had stated that no money was payable unless a Work Order was issued by the defendant and that no Work Order was issued to the plaintiff.

6.  The defendant denied that the ITS had created any contractual relationship between the parties or any obligation on the part of the defendant to pay the plaintiff.

7.  The defendant admitted that it had issued a letter dated 6 December 2004 to the plaintiff because the plaintiff had failed to pay wages to its workers at HK$258,170 which the defendant had paid on its behalf.  The letter was to claim the plaintiff for the said sum of HK$258,170.

8.  The defendant further pleaded that it had not received the plaintiff’s invoices until mid-August 2005.

9.  The defendant put the plaintiff to strict proof as to:

(i)    the plaintiff’s relationship with the defendant;

(ii)   the plaintiff’s involvement with P&D works of the KCRC contracts; and

(iii)  if there was indeed a contract between the plaintiff and defendant, the work done and materials supplied to the defendant.

10.  Mr Niehorster, counsel for the defendant set forth three main grounds of defence in his closing submissions as follows:

(i)    there is no compelling evidence showing that a concluded and legally binding contract had existed between the parties;

(ii)   even if such a contract were found to exist, the evidence of the works said to have been performed by the plaintiff under the contract is dubious at best and cannot be relied on by the court to conclude that such works had in fact been carried out; and

(iii)  even if the court were to find that there were sufficiently compelling contemporaneous evidence to show that the alleged works had been carried out by the plaintiff, there is no reliable evidence to verify that the costs said to have been incurred by the plaintiff had in fact been incurred.  This is so despite that the plaintiff had been put to strict proof of the various elements of its claim.  To the extent that any proof of payment exists, those records should be accorded no weight in circumstances where the plaintiff appears to have destroyed its own financial records after commencing these proceedings.  The evidence of Chung Tak Leung (PW2), even put to the highest, was contradictory and in any event so confused and unclear as to be of no helpful assistance to the Court. 

The evidence of PW2 Chung Tak Leung

11.  The plaintiff has called two witnesses. I will first deal with the evidence of the second witness Mr Chung Tak Leung. 

12.  Mr Chung isand was a director of the plaintiff at all material times.  His witness statement stated that the plaintiff is and was a small subcontractor.  The defendant by the ITS instructed the plaintiff to supply labour at the City One, Ma On Shan, Shek Mun and Wu Kai Sha train stations (“the Sites”) under the KCRC contracts.  The contractual relationship between the parties arose out of the ITS.  Mr Chung had orally agreed with the defendant’s project director, Mr KS Yeungbefore the commencement of the supply of labour that the defendant would pay the plaintiff HK$700 per man-day. The ITS was from time to time confirmed through the oral instructions of the defendant’s staff who requested the plaintiff to provide labour at the Sites. The defendant’s site supervisor Mr David Wong would advise the plaintiff’s labour leader Mr Chan Kam Kui the number of workers required on the Sites on the following day and the defendant would duly arrange the necessary number of workers to attend the Sites.

13.  The plaintiff’s workers also followed the instructions of the defendant’s staff to carry out the works accordingly.  The plaintiff did not make any record on what works had been done by any individual worker as it was a labour supplier.

14.  Mr Chung further said that the number of workers supplied by the plaintiff at the Sites each day was recorded in:-

(i) the summary tables of Daily Worker Records attached to the plaintiff’s invoices (“the summary tables”); and

(ii) the Daily Worker Records bearing the signatures of the plaintiff’s workers who worked at the Sites.

15.  There are 15 summary tables with one table for each month from September 2003 to November 2004.  Each table shows the workers’ English names and the days of the month that each of them had worked.

16.  There are two types of Daily Worker Records.  The first type is the daily attendance record (“the daily record”). There are also 15 sets of daily recordswith one set for one month from September 2003 to November 2004.  They contain the names of the workers, their site pass numbers and their signatures signifying their attendance on the dates marked on the record.

17.  The second type of Daily Worker Records (“the monthly record”) is a record of the monthly attendance of the workers.  There are 15 such records in table form with one table for a month from September 2003 to November 2004.  The tables only state the number of man-days provided by the plaintiff on each day of the month or half-month as mentioned therein.  The identities of the workers are not mentioned.

18.  Mr Chung said that the plaintiff had duly paid the wages to its workers from September 2003 for their work on the Sites except 12 workers for the period from 16 August to 15 November 2004. These workers were paid their wages for this period by the defendant for the plaintiff in a labour dispute.  They acknowledged receipt of their wages by signing an acknowledgement of receipt of wages (wage acknowledgement”).

19.  The wage acknowledgementis a list containing the Chinese and English names of the workers, their Hong Kong Identity Card numbers, site pass numbers and their signatures.  But the amounts of wages received by the workers are not stated therein.

20.  Save for the labour dispute above-mentioned, the plaintiff had paid its workers through its worker leader Mr Chan Kam Kui.  Normally, the plaintiff paid cash to Mr Chan who then paid the workers.  On a few occasions, the plaintiff paid Mr Chan by cheques.

21.  Apart from supplying labour, the plaintiff had also paid for some materials for the defendant.

22.  The plaintiff had sent the defendant an invoice with the title “Quotation for KCRC East Rail Extension Contract No. TCC 200 & TCC 300” (“invoice”) in each month from September 2003 to November 2004 seeking payment of the amount due and payable.  Each invoice recorded the number of man-days provided at the Sites and the costs of materials paid by the plaintiff for the defendant in the preceding month.  Each invoice had also attached to it:-

(i)    A summary table of the month;

(ii)   Workers’ wage acknowledgement; and

(iii)  Receipts of material costs paid by the plaintiff for the defendant.

23.  The invoices were sent by the plaintiff to the defendant on about their dates and the defendant made no objection or complaint in relation thereto at all material times.

24.  Apart from the invoices (titled “quotations”), the plaintiff has also produced some invoices which mirrored the quotations on the amounts claimed.

25.  The reference numbers, periods in which man-days were supplied and amounts claimed in the invoices/quotations are summarized below:-

26.  Mr Chung further said that the plaintiff had paid wages to its workers up to 15 August 2004.  It then had financial difficulties because the defendant refused to pay anything to it despite it had rendered services and paid the costs for the materials.

27.  As a result, the workers complained to the Labour Department against the plaintiff, the defendant, JCO and the Main Contractor for non-payment of wages.  The defendant by a letter to the plaintiff and dated 6^th December 2004 agreed to pay the plaintiff’s workers an amount of HK$258,170 to settle their claim for wages on behalf of the plaintiff.  The defendant in the letter also stated that it would deduct the HK$258,170 from any amount due from the defendant to the plaintiff in relation to KCRC contracts.  The letter further stated that it was the plaintiff’s responsibility to settle the wages.

DW4 Mr Yu Hing Waiand Winice Corporation Ltd.

28.  I would interpose here some evidence of DW4 Mr Yu Hing Wai to show the involvement of a Winice Corporation Ltd. (“Winice”) in the P&D works at the Sites.  Mr Yu was the Head of the Strategic Business Unit of the defendant at the material time.  The P&D works were then managed by Jardine M & E Contracting Limited (“JME”) for the defendant.  JME was a subsidiary of the defendant.  In about the end of 2003, the defendant’s senior management decided to wind down JME.  The defendant assisted those in charge of JME to form Winice to take over the management of the projects then managed by JME.  The P&D works was one of the projects. 

29.  When Winice was established, its shareholders included the director of JMS Mr KS Yeung, PW1, Mr Leung Kam Fai or KF Leung (“Mr Leung”) and a few others. 

30.  On 30 December 2003, the defendant and Winice entered into a project management agreement whereby the defendant appointed Winice as the defendant’s project manager for various projects including the P&D works at the Sitesfrom 1 January 2004 onwards.  Mr KS Yeung and Mr Leung ceased to be the employees of the defendant from 1 March 2004.  However, they continued to be the defendant’s representatives in relation to the P&D works by reason of the said project management agreement.  Mr Leung was still the project manager of the P&D works.

31.  Up until April 2004, Winice continued to operate from the office of JME.  On about 27 April 2004 Winice relocated to its own office.  When Winice moved office, it took away the documents relating to the ongoing projects including the P&D works.  In about early to mid-2005, Winice had a dispute with the defendant.  It lasted for several years.  

32.  For several years from the removal of Winice, the defendant did not have access to the majority of the project documents for the ongoing projects which included the P&D works. The lack of documents and the lack of access to Winice’s key personnel made it difficult for the defendant to assess the validity of the claims that were made against it on the ongoing projects.  The defendant considered that it was for the most part kept in the dark by Winice on how the ongoing projects were being managed.

33.  To Mr Yu’s knowledge, the plaintiff first asked the defendant to pay for the plaintiff’s supply of labour to the KCRC contracts by a letter dated 23 June 2005.  This letter was only received by the defendant by fax on 12 August 2005.  The 15 invoices claimed by the plaintiff in this action first came to his attention in mid-August 2005.  The defendant had never received these invoices when the works were being allegedly carried out by the plaintiff’s workers.  The defendant did not have access to the project documents from mid-August 2005 onwards. They were kept by Winice.  By 12 August 2005, the defendant’s final account for the P&D works had been sent to JCO.  The defendant was tus unable to assess whether the plaintiff’s claims were valid

34.  Eventually Winice sued the defendant’s wholly owned subsidiary T J Engineering Service Ltd in HCCT 30/2010.  The action was settled on 26 November 2010 by a confidential settlement agreement. Winice then sent the defendant some 97 boxes of documents relating to a number of projects including several boxes of files on the P&D works.

The evidence of PW1 LeungKam Fai or KF Leung

35.  Mr Leung was the Project Manager of the Building Services Contracting Department of the defendant from 2003 to February 2004 when he moved over to Winice.  He was solely responsible for the P&D works at the Sites under the KCRC contracts both before and after his moving over to Winice.

36.  He said in his witness statement that he had on behalf of the defendant issued the ITS to the plaintiff and instructed the plaintiff to supply labour to carry out the P&D works according to the Main Contractor’s programme at the Sites. He understood that the ITS was a formal instruction by the defendant to the plaintiff. The ITS was based on a standard form of the defendant.  He was aware of the clause stating that “This ITS Must be confirmed by a WORK ORDER.  Under no circumstances shall any money be paid without issue of a WO.”  He knew that the defendant had an internal policy that a work order was required before any money could be paid to a subcontractor.  He had no authority to change the terms on the standard form. 

37.  He had also drafted a work order to the plaintiff for approval and/or execution by the defendant’s senior management.  But he had not received any reply or explanation from the senior management regarding its issuance.  He said in oral evidence that he had in fact drafted two draft work orders.  He drafted the first one at about three months after the plaintiff’s commencement of works.  He drafted the second at two to three months after the first one.  But no formal order was issued pursuant to the two drafts.

38.  He knew that his senior, the defendant’s project director Mr KS Yeunghad on behalf of the defendant orally agreed with the plaintiff that the wages for each man-day was at HK$700 per man-day.

39.  After the ITS was given to the plaintiff, the plaintiff’s workers followed the instructions and drawings provided by his team, including himself and his subordinate Mr David Wong, the site supervisor of the defendant, to carry out the P&D works.

40.  The attendance of the plaintiff’s workers on the Sites on each day was recorded on daily records prepared by the plaintiff.  He had instructed Mr David Wong to check the workers who had attended the Sites against the daily records bearing their signatures.  If Mr Wong could not see any worker at the Sites or if any worker had only worked for a short duration, then he would cross out the worker’s name from the daily record.  He thus believed that the daily records represented the actual number of man-days provided by the plaintiff.

41.  After checking the daily records, Mr David Wong would summarize them on a monthly basis and produce the summary tables.

42.  The number of workers provided by the plaintiff at the Sites on each day can thus be found in:-

(i) the daily records signed by the plaintiff’s workers and submitted by the plaintiff to the defendant; and

(ii) the summary tables prepared by Mr David Wong.

43.  The plaintiff had submitted the daily records to the defendant.  The defendant had in turn submitted them to JCO which had in turn submitted them to the Main Contractor.  This was to ensure that the defendant had engaged enough workers on the Sites as required by the KCRC contracts.

44.  The Main Contractor and JCO also had to ensure that wages had been paid to the workers.  The defendant thus kept all the workers’ attendance records and wages payment records for submission to JCO.

45.  Mr Leung said that after Mr David Wong had checked the daily records of a preceding month, the plaintiff would submit its invoice for payment of the man-days supplied and material costs paid by it in the precedingmonth.  He confirmed that during the construction period he had received one invoice in each month from the plaintiff recording the number of man-days supplied and material costs paid in the preceding month. 

46.  Mr Leung also confirmed in both his witness statement and oral evidence that he and Mr David Wong had checked and confirmed the accuracy of the invoices, especially on the number of man-days.  He then passed the same to the defendant every month.

47.  After the defendant had completed the P&D works in or about November 2004, he had personally verified that the number of man-days claimed by the plaintiff in all the invoices did match the daily records.  He then drafted a work order to cover all the sums claimed by the plaintiff and submitted it to his senior Mr KS Yeung for processing of payment to the plaintiff.  However, for unknown reasons, no one approved his draft.  As a result, no money was paid to the plaintiff.  (This bit of his evidence is not in line with what he said in oral evidence where he said that he had prepared two draft work orders within about three and five to six months after the commencement of work by the plaintiff.)

48.  Mr Leung also made a supplemental witness statement.  He said in that statement that prior to engaging the plaintiff, the defendant had engaged another subcontractor Waybo Engineering Co (“Waybo”) to do the P&D works.  Waybo was engaged on a lump sum basis at HK$3,300,000 for supplying labour and materials to complete the P&D works in the KCRC contracts. However, Waybo ceased working in mid-August 2003 and there was pressure from JCO for the defendant to increase the labour supply for the works.  It was in such an urgent situation that the plaintiff was engaged in about September 2003 on a day-work basis.  He also said that there was no subcontractor that had interest in the works except the plaintiff. The engagement of the plaintiff was also approved by the project director Mr KS Yeung.

49.  Mr Leung also referred to the engagement of another subcontractor Honour Wealth Engineering (“Honour Wealth”) at the early stage of the P&D works before Waybo was engaged. Honour Wealth was to provide labour to preserve openings for the pipe-work penetrations to be done later.  It was engaged not on a lump sum basis like Waybo but on a day-work basis like the plaintiff.  Mr Leung had prepared draft work orders for it after it had provided the service.  Formal purchase orders were duly issued by the defendant for payment to it.  

50.  Mr Leung also said that he had prepared the defendant’s final account for the P&D works which had been submitted to JCO.  Though the contract sum between JCO and the defendant was for a lump sum of HK$3,550,000, the defendant in the final account sought payment from JCO a total sum of HK$7,250,619 by putting forward a further claim of HK$3,700,619 for variation works.  Mr Leung confirmed in oral evidence that the variation claims were prepared by him.

51.  Despite the total claim of HK$7,250,619 in the final account which included variation claims at HK$3,700,619, JCO eventually only paid the defendant HK$3,790,453.71.  That was the contract sum of HK$3,550,000 plus HK$240,453.71 for variation works.  (This sum of HK$240,453.71 was only about 6.5% of the total variation claims.)  

The evidence of DW1 Mr Fong Sai Keung

52.  Mr Fong was an employee of the defendant.  But he was seconded to JCO as the senior project manager.  He was involved in the P&D works in that capacity.  He dealt with the certification of the percentage of completion of works by the KCRC contracts by defendant in re-examination.  He said that usually when a sub-contractor submitted its application for payment, it would submit for a larger sum.  He would look at the actual amount of work done and certify accordingly. Furthermore, if the completed works need rectification, he would include the value of the reification works as part of the value of the outstanding work in the contract. That means if the defendant should claim 100% completion but the rectification of defects would require 10% of the value of the contract, then he would take into account the value of rectification and certify 90% completion only.

The evidence of DW2 Mr Mak Chun Kei, Jacky

53.  Mr Mak is a quantity surveyor of the defendant.  He made a witness statement and a supplemental witness statement.  He was employed by the defendant in 2005after the P&D works had been completed.

54.  He referred to the defendant’s policies and procedures for procurement of subcontractors and suppliers for its projects in his witness statement.  When the defendant intends to subcontract part of its works on a project, then depending on the nature and value of the subcontract, it must find the suitable candidate through a tender process or by obtaining multiple quotations.  If a procurement of services has a value exceeding HK$5,000, the Quality Policy requires at least three quotations to be obtained.  The subcontractors should also be selected from an Approved Subcontractor List kept in each of the defendant’s offices. 

55.  Where the procurement is urgent, subcontractors not on the Approved Subcontractor List can be selected provided that prior approval from a branch manager is given and an application is made to the finance department in accordance with the Quality Policy.    

56.  The defendant would notify the selected subcontractor by issuing to it a Work Order and subcontract documents.  The defendant would also enter the Work Order and the details of the subcontractor into its electronic system called “JEMIS” so that the subcontracting costs can be booked against the project accounts. 

57.  When the subcontractor provides an invoice for work done, the defendant will enter the invoice into the JEMIS system, forwarding the invoice to the relevant teams for checking and assessment to ensure that the work claimed has been completed, seek approval from the relevant authority and make payment pursuant to the assessment and approval. 

58.  Mr Mak also dealt with the issuance of an ITS in his witness statement.  He said the defendant would rarely issue an ITS.  It would issue an ITS to put potential subcontractors on notice that it is considering engaging them so that they would be ready to go.  The ITS is only issued when the defendant is not yet aware of the nature and extent of the works that it wishes to procure. Hence, the ITS includes a statement that "This ITS Must be confirmed by a WORK ORDER.  Under no circumstances shall any money be paid without issue of a WO".

59.  The defendant’s JEMIS system does not allow payment to be processed for subcontractors unless a Work Order has been issued and its details entered into JEMIS.  

60.  He also said in his supplemental statement that once the cost of a project exceeds the budget set in JEMIS, no further invoice can be entered into the system.  However, the budget limit of the project in JEMIS can be increased by the management if there should be valid justification such as invoices with evidence of work done and costs incurred for the work.  After the limit has been increased in JEMIS, further invoices can be entered into the system for payment. 

61.  Mr Mak also referred to the defendant’s payment records showing that it had made payments Honour Wealth and Waybo.      

62.  Mr Mak has reviewed the defendant’s records and could not find any indication that the plaintiff was on the defendant’s lists of approved or preferred supplier or subcontractor.  There was also no prior approval from a branch manager for the defendant to enter into a subcontract with the plaintiff.  There was also no application made to the finance department for a subcontract to be entered into with the plaintiff pursuant to the Quality Policy.  There was also no record evidencing the internal consideration of the plaintiff as a subcontractor of the defendant for the P&D works.

63.  Mr Mak also considered the 15 invoices and quotations issued by the plaintiff to the defendant.  The invoices appear to be for payment for labour provided on day-work basis.  He said that for subcontractors engaged on day-work basis, he expected that there would be information in the invoices on the items of work that the claim related to; the number of items that had been done; the location and/or the type of work undertaken by each worker; the rate charged for the work; the daily or weekly worker records instead of monthly records; and the worker records signed by the defendant’s site team to show that they were genuine and contemporaneous.  If the work was completed in accordance with quotations submitted by the subcontractor, the quotations should be signed by a representative of the defendant at the project manager level or above.

64.  Mr Mak has also said in his supplemental witness statement that he had reviewed some documents on the P&D works that had beenreturned by Winice to the defendant in 2010.  He found some original signed calculation sheets addressed to “Ms Hui” (who shouldbe Ms Maggie Hui of Winice) at “Jardine M&E”.  They set out the number of workers, dates and amounts of wages.  Each sheet was signed by a Mr Chan Kam Kui and addressed to “Jardine M&E” or “the defendant”. They did not contain any reference to the plaintiff.  (PW2, Mr Chung said Mr Chan Kam Kui was the plaintiff’s labour leader.)

65.  The documents returned by Winice also included hundreds of original invoices and other incoming documents addressed to the defendant.  These records were generally marked with an ink stamp showing the date of receipt, the initials of the personnel receiving them and directions for actions to be taken pursuant to the documents.  (MrLeung confirmed in oral evidence that this was also the practice at Winice.)

66.  The documents returned by Winice included carefully kept records even for relatively small amounts.  There was a letter dated 11 November 2004 sent by Mr Leung for the defendant to JCO submitting a quotation for HK$9,000 for labour and materials to “replace existing Fresh Water/Flush Water meter position”.  That quotation set out the price, the work period and the payment terms.  It also enclosed a quotation from Garwin Engineering Ltd showing a breakdown of the price.  That quotation had been stamped as received with the project job number stated in it.  (This confirms the oral evidence of Mr Leung that the practice of the defendant on handling of received documents had been adopted by Winice.) 

67.  Mr Mak also observed that when a Purchase Order was issued, it was preceded by an internal “Order Issue Checklist”.  The checklist had to be signed and countersigned.  It also stated the compliance with the relevant internal procedures. It thus appeared that the procedure described by MrMak in his first witness statement for subcontracting works by the defendant had been complied with by the defendant in subcontracting the P&D works.

68.  The 15 invoices from the plaintiff are also contained in the documents returned by Winice, but they are not stamped and not accompanied by any Purchase Order or Order Issue Checklist. 

69.  Regarding the plaintiff’s claim for reimbursement of the costs of materials, Mr Mak referred to some of the receipts for costs of materials attached to the plaintiff’s invoices which were addressed to “Kam Wah Water Electrical Engineering”.  He could not find any reference to Kam Wah Water Electrical Engineering on the defendant’s system.  However, the name of this company did appear on the salary record of the workers who claimed wages in the labour dispute in November 2004.

70.  Regarding the plaintiff’s complaint that the defendant had refused to pay the 15 invoices (which had the wage acknowledgements referred to above annexed thereto), Mr Mak was only able to find from the documents returned by Winice the 15 invoices which were without the date stamps.  He could not find any other correspondence from the plaintiff to the defendant from September 2003 to November 2004 over which the plaintiff claimed payment for labour and material.  (Both PW1, Mr Leung and PW2 Mr Chung confirmed in oral evidence that the plaintiff had only sent the defendant the 15 invoices and no correspondence to the defendant during this period.)

71.  There were amongst the documents returned by Winice a number of “Contract Booking” forms relating to a range of different projects.  Three of them related to the plaintiff and the P&D works:

(a)  a Contract Booking Form that referred to the plaintiff and dated 21 September 2004 (D3/3048-3049). It stated the latest “subcontract cost” for the works at HK$2,129,148.16 and “material cost” at HK$2,242,176.57.  A list of creditors was attached to the form.  The list included “the plaintiff for sundry materials” for a sum of HK$218,565.10.  (This form was signed by Mr KS Yeung, one David Wong, the Executive Director of the defendant and an unknown person (Transcript for day four-T4/107-23 to 108-11)).

(b)  another Contract Booking Form dated 16 February 2005 which stated the latest “subcontractor cost” at HK$7,126,378.96 and “material cost” at HK$2,302,082.14.  Attached to it is a list of creditors which included “the plaintiff” being owed HK$4,630,350.80 (D3/3051-3053).  This form was unsigned and therefore appeared to be a draft. 

(c)  a third Contract Booking Form dated 13 April 2005 which had the same figures as in the last one (D3/3054-3056).  This form also had a list of creditors attached to it with the plaintiff being allegedly owed HK$4,630,350.80.  This form was again unsigned and therefore appeared to be a draft.

(PW1 Mr Leung confirmed in oral evidence that in all probability he had not submitted these two draft forms to the defendant’s head office (T4/24/22 – 26/9, T4/24/22 – 26/9)).

DW3 Iu Shui Keung

72.  The part of Mr Iu’s evidence that is relevant to the claim is on the labour dispute involving the plaintiff’s workers. He said that in the course of his employment by the defendant, he had taken part in reviewing and responding to claims made by workers to the Labour Department. The defendant’s general approach to such disputes in or about 2002 to 2004 involved a number of stages:

(a)  The Labour Department would send the defendant a notification of the workers’ claims. 

(b)  Either Mr Iu or one of his staff would communicate with the project staff on the work site to confirm whether the workers’ names given by the department were workers employed by the defendant, one of its subcontractors, sub-subcontractors or sub-subcontractors further down the line.  The project team would enquire with the subcontractors on site and confirm the position.

(c)  The defendant would then attend the site and check whether each worker had worked on the site and what work each worker had done.  The defendant would usually check the attendance records made by the workers which would include the dates, names and signatures of the workers.  The defendant would also check the rates claimed to see if they were reasonable.

73.  During the period of the P&D Subcontract, Mr Iu was asked to investigate on behalf of the defendant a number of labour disputes concerning claims made by workers with the Labour Department.  He could not recall the details of the disputes. He expected to see a record of the defendant’s internal checking and assessment of the claims of the plaintiff’s workers on site but could not find the same.

Assessment of the evidence

74.  I find the evidence of the defendant’s witnesses straight forward.  What they say is often in line with what is shown or not shown in the contemporaneous documents.  Their evidence is also reasonable and does not involve anything that is incredible.  I accept their evidence.

75.  Regarding the evidence of the defence witnesses Mr Chung and Mr Leung, I will analyze them in some detail below.  For Mr Chung’s evidence, there are dubious areas like why did he not even write a demand letter to the defendant when he was paying millions of dollars to the workers but not received a dollar from the defendant and why was he unable to produce any banking and accounting documents to support his case that he had paid the workers millions of dollars.  His evidence on the whole sounds incredible and unreasonable.  For the evidence of Mr Leung, he has admitted many times that he could not explain things that appeared unreasonable.  On the whole, if there should be any conflict between the evidence of the plaintiff and that of the defendant, I accept the evidence of the defendant and reject that of the plaintiff.

The defendant’s submissions and analyses

76.  Mr Niehorster for the defendant has in his opening submissions argued that there was no contract between the parties.

77.  He further pointed out that during the 15 months from September 2003 to November 2004 in which the plaintiff alleged that it was providing labour to complete the P&D works and for many months thereafter, the plaintiff had not written to the defendant to enquire about payment for any of its 15 invoices.  There was no written demand whatsoever from the plaintiff despite the sum allegedly payable had accumulated gradually to over HK$4 million.  However, the defendant had indeed paid other subcontractors that it had contracted to take part in the same P&D works project. 

78.  He further submitted that the plaintiff had failed to properly substantiate its claims with acceptable evidence like bank statements, audited account or other accounting documents to show that it had paid the workers.  The defendant’s solicitors had also by a letter dated 21 December 2006 asked the plaintiff’s solicitors to produce the payroll records and proof of payment of salaries.  They sent a further letter dated 27 November 2012 asking the Plaintiff to confirm that it had the possession or custody or power over original banking documents that evidenced payment of the workers and materials. The plaintiff’s solicitors replied by a letter dated 6 December 2012 saying that such documents were a “matter of evidence” and would be dealt with in the witness statements. The defendant’s solicitors sent a follow up letter dated 14 August 2015stating that they were assuming that the documents they requested for by their letter dated 27 November 2012 were in existence. They asked the plaintiff to provide proof of payment to the workers and the plaintiff’s bank account statements from September 2003 to December 2004.  They sent a further letter dated 15 June 2016 to request for bank statements and other financial records evidencing payment to the workers and for the materials.  But in the end, no such document was produced by the plaintiff.  

79.  The defendant has produced some documents showing that some workers had infringed the rules of the construction site.  These workers are the same as those allegedly employed by the plaintiff.  Mr Niehorster thus accepted that some of the workers in respect of whom the Plaintiff claims were at the site.  However, he submitted that there is no evident documentary evidence showing how many of the workers were there, for what period, doing what kind of work and who paid them.

Whether there was a contract between the parties for supply of labour and materials

80.  The plaintiff pleaded that there was a contract “contained in or evidenced by the plaintiff’s quotations and invoices made on various dates and the defendant’s ITS…” The defendant’s position is that the ITS has no contractual effect and there was no agreement between the parties.

81.  The ITS (D10/4730) is an instruction by the defendant to its sub-contractor.  It named the plaintiff as the sub-contractor. It named the contract in question as “KCRC – P/D Installation”.  The main body of the ITS stated: “In accordance with the signed terms and conditions of the work order, please comply with the following instruction: -

“To supply labour to carry out and complete the P/D installation work according to Main contractor’s programme at MOS, WKS, C/O and SHM stations.”

There was then a note stating that:

“PLEASE NOTE: This ITS must be confirmed by a Works Order. Under no circumstances shall any money be paid without issue of a WO.”

It was then signed by Mr Leung for the defendant. 

82.  Mr Niehorster submitted that the ITS did not contain essential terms like price, duration, payment terms and the like and it must be void for uncertainty.  I disagree.  Though the plaintiff did not plead the consideration and these other terms of the contract, the defendant could have applied for further and better particulars of the contract or to have the claim struck out (§§ 18/12/3 and 18/12/7 of Hong Kong Civil Procedure 2017). But it had not done so.  Hence, the action continued as pleaded.  There is nothing to stop the plaintiff from leading evidence on the consideration and the other terms.

83.  Mr Chung and Mr Leung gave oral evidence that the rate of the man-day had been agreed between Mr Chung on behalf of the plaintiff and Mr KS Yeung on behalf of the defendant.  Such rate was used in the 15 invoices issued by the plaintiff.

84.  The plaintiff has also pleaded that the contract was “contained in or evidenced” by the invoices.  I take that to mean that the plaintiff’s acceptance of the defendant’s ITS is contained in or evidenced by the invoices which were issued after the plaintiff had accepted the ITS by sending the workers along.

85.  Mr Lam, counsel for the plaintiff submitted in his opening submissions that there was clearly a contract between the parties, otherwise their relationship would not have continued from September 2003 to November 2004.  This argument is illogical and circular as it is based on the assumption that there was already a contractual relationship.  Mr Lam should also not use the evidence showing that the plaintiff had indeed supplied some workers to the site as evidence that there was a contractual relationship.  The defendant did not dispute that some of the plaintiff’s workers were at the site.  The defendant however disputes that they should have been sent there when there was no contract.

86.  Mr Lam also argued that the issuance of a Work Order was a matter of the defendant’s internal policies which should not affect the plaintiff.  However, the note stipulating the need for a Work Order is in the ITS.  It is a stipulation that governed the relationship between the parties. 

87.  Mr Lam also referred to the defendant’s receipt of the 15 invoices and demand letters and its failure to comment on the documents or to deny the involvement of the plaintiff immediately.  However, the defendant’s case is that it only received them in a lot in about mid-August 2005 when the plaintiff had allegedly completed all its obligations under the alleged sub-contract months before that.  Unless I find against the defendant on this and hold that it had received the invoices on a monthly basis when the contract was allegedly performed, I do not think the receipt of these documents can show that there was a contract between the parties.

88.  Mr Lam in his closing submissions also referred to the defendant’s letter dated 6 December 2004 (D10/4595-4599).  That was in relation to the labour dispute in November 2004.  It recorded that the defendant had paid HK$258,170 to the plaintiff’s workers on behalf of the plaintiff and that the defendant would deduct it from any amount due from the defendant to the plaintiff.  This letter should be considered in the context of a labour dispute and that the defendant was liable under the employment Ordinance to pay these workers.  I do not think this letter alone can establish a contractual relationship between the parties.  The defendant would still be liable if the plaintiff should be a sub-sub-contractor of the defendant’s sub-contractor. 

89.  Mr Lam further referred to a letter dated 14 April 2005 from the defendant’s Manager–Administration Services to the plaintiff reminding the plaintiff that its employee’s compensation insurance policy had expired (D10/4680-4685).  There are over thirty files of documents in this trial. This letter is only mentioned for the first time in the plaintiff’s closing submissions. It had not been shown to any witness.  I do not know how and why this letter had come about.  I cannot rely on it to say that the parties were in a contractual relationship within the project of the KCRC contracts.

90.  The plaintiff also cannot rely on the dealings between the defendant on the one hand and Waybo and Honour Wealth on the other.  The reason being that there is neither pleading nor evidence saying that the plaintiff had knowledge of or relied on such dealings when it dealt with the defendant. The evidence of the dealings between the defendant and Honour Wealth indeed shows that a sub-contractor would rely on an ITS alone and provide service to the defendant (T2/149/19-24 and T2/152/16-153/11).  Waybo also started work without assurance that it would be paid as the Purchase Order was issued a few months after it had started working for the defendant (T3/66/10-68/23).  Honour Wealth and Waybo were taking a risk that they would not be paid.  I asked Mr Leung why the sub-contractors were willing to take such risk.  He said, “it was because of the big company.  Because it was Jardines” (T3/85/5-13).

91.  Mr Niehorster relied on the stipulation under the note of the ITS that the ITS had to be confirmed by a Works Order and that no money would be paid without issue of a Work Order.  He equated the situation of the ITS without a Work Order with the situation of a letter of intent without the contemplated contract entered into. He thus submitted that there was no contract between the parties.  He, however, changed tack in his closing submissions.  He said the ITS could only be a contingent contract subject to the issuance of a Work Order, which never happened.  The existence of a contingent or conditional contract is different from no contract.  Hence, Mr Niehorster shifted ground.

92.  Mr Lam submitted that this stipulation in the note of the ITS is governed by the Control of Exemption Clause Ordinance; Cap. 71. He did not mention which provision in the ordinance is relevant.  I have checked through the whole ordinance and cannot find anything relevant to the stipulation.  The stipulation does not seek to exclude or restrict any liability that the defendant would otherwise be subject to.  I do not think the ordinance is relevant. 

93.  Mr Lam further submitted that there are at least 2 ambiguities in the stipulation in the ITS.  The first ambiguity is that it is not clear as to whom the stipulation is directed to, so that it can be construed to mean only for the defendant’s internal use and for its purpose of recording payment arranged to the plaintiff.  I am of the view that this argument is flawed.  The stipulation is clearly there to govern the relationship between the defendant and the sub-contractor.  I can see no ambiguity as submitted.

94.  Mr Lam further submittedthat the second ambiguity is in the meaning of the “Work Order”.  He said the ITS did not specify the way and format of a “Work Order”.  Hence, the oral instructions given by the defendant from time to time could be the work orders.  But this point is only mentioned in the closing submissions and not pleaded by the plaintiff or mentioned in the evidence. This point is not open to the plaintiff.

95.  Having considered the submissions of the parties, I take the view that the ITS will only be effective after its confirmation by the issue of a Work Order  y the defendant.  I accept the evidence of Mr Mak that an ITS would be issued when the defendant is not yet aware of the nature and extent of the works that it wishes to procure and the ITS is to put the subcontractor on notice that work may come so that it would be ready to go when a Work Order is issued.  Before a Work Order is issued, the ITS is only a conditional contract. Whilst it is conditional, neither party has any obligation to render any performance pursuant to it.  Once the Work Order is issued, it will become effective immediately.

96.  This conditional contract may not impose any obligation upon the defendant, but it may impose an obligation on the sub-contractor to at least give notice of termination or withdrawal to the defendant if it no longer wants to wait for the work to come.  If, as originally submitted by Mr Niehorster, the ITS without the Work Order can have no contractual effect at all, then the sub-contractor will not even be required to advise the defendant of its withdrawal from the ITS. If that be the case, one wonders why the ITS should be issued at all (§§ 2-147-150, Chitty on Contracts, Vol. 1 (30^th ed)).

97.  However, the undisputed evidence on the defendant’s dealings with Honour Wealth and Waybo shows that the defendant’s actual practice and purpose in using the ITS can deviate from what Mr Mak has described. Honour Wealth was given an ITS dated 27 May 2002 (D2/2678) also with the stipulation under the note as in the ITS for the plaintiff.  Waybo was given a Purchase Order dated 3 December 2002 belatedly (D7/3766).  Both Honour Wealth and Waybo had started providing service to the defendant per the defendant’s requests well before the necessary Work Order/Purchase Order was issued.  Both sub-contractors work under the risk that the defendant might not pay for their services (T2/149/19-24, T2/152/16-153/11 and T3/66/10-68/23).  Honour Wealth was in fact not paid for a few invoices until some three years and eight months after the invoices had been sent to the defendant. A Work Order was only issued when Honour Wealth sent in a reminder in 2006.  Such practice of the defendant is high handed and unfair to the small sub-contractors. It is lamentable that a wellestablished company like the defendant would adopt such unfair and high handed practice. 

98.  If the defendant should have used an ITS without Work Order previously to mobilize Honour Wealth to provide service, Honour Wealth on this occasion may rely on the past practice to defeat the stipulation in the ITS.  The same applies to Waybo which had been asked to work without a Purchase Order.  However, the plaintiff cannot rely on any previous practice between the plaintiff and defendant as Mr Chung had admitted that there was no previous dealing between the plaintiff and the defendant.  There is also no pleading or evidence to show that the plaintiff was aware of and had relied on the defendant’s mal-practice with Honour Wealth or Waybo.

99.  Since no Work Order was issued and the ITS remained a conditional contract between the parties, the plaintiff did not have to supply any worker to the Sites.  Even if it did, the defendant would have no obligation to pay it for the service.  On this ground alone, I have to dismiss the plaintiff’s claim for payment for supply of labour. 

100.  Since the plaintiff’s claim for the costs of materials is made on the same basis as for the supply of labour (§3 of the statement of claim), the fact that the contract between the parties is only a conditional one is a bar for the recovery of such costs as well.  I will also consider the other grounds advanced by the defendant.

The plaintiff paid the workers for over HK$4 million without evidence of resource or receipt and only for a 2.9% profit

101.  The plaintiff’s case has quite a number of peculiar features.  Mr Niehorster has pointed out at the pre-trial review that it was odd that the plaintiff could have provided workers to work for the defendant for 15 months all without being paid by the defendant and it did not even send the defendant a demand letter until months after its workers had allegedly completed the work and left the Sites.

102.  PW2 Mr Chung said in oral evidence that the plaintiff was in great financial difficulties at that time because it had to pay the workers but was not paid by the defendant in return.  The plaintiff had no money in the bank and he had to borrow money to make the payments.  Very often when he was paid his salary, he would use the same to pay the workers too (T6/86/1-14).  He also got monetary help from his family (T6/100/12-13). 

103.  However, despite all these difficulties and not being paid by the defenant, the plaintiff continued to supply labour to the Sites month after month from September 2003 to November 2004.  When he was asked what he did to relieve the plaintiff from difficulty, he said he had tried his best to find other projectsto cover the expenses.  He had also kept on asking his staff to verbally chase the defendant for payment.  When he was asked why did he not send the defendant a letter of demand.  He said he was at that time extremely busy in trying to get hold of other projects to find money to cover the expenses. When he was asked why he was so kind to the defendant in continuing to supply labour for the defendant when the defendant was so harsh to him in not paying the plaintiff,he said he did not expect the work to last for such a long time (T6/99/19-102/13). 

104.  Though Mr Chung said that he (or the plaintiff) had to borrow money to pay the workers, the plaintiff did not produce any loan documentation to back up this allegation.  The plaintiff had in fact failed to produce any banking or accounting document including audited reports to show the source of funding and the use of such funds to pay the workers. This was so despite repeated requests by the defendant’s solicitors for specific discovery of such documents.  Mr Chung’s explanation for the failure is that he did not know if he had thrown the records away or just put them aside because there were so many of them (T6/85/23-24).  However, he was at all material times represented by solicitors and the defendant’s solicitors had asked for such records as early as 21 December 2006.  I have already dealt with Mr Niehorster’s submissions on this point above where he has set out the correspondence between the solicitors on the discovery of these documents. I find Mr Chung’s explanation for not producing such documents unbelievable.

105.  I am also of the view that if the plaintiff’s claim is genuine, there is no reason why it would not have sent the defendant a demand letter when the defendant was in arrears for say three or four months.  I cannot imagine why the plaintiff would have abstained from giving the defendant a demand letter.  The letter could also have been backed by a threat of stoppage of work on the ground of the defendant’s breach of contract in not making payment.  I think it is incredible that whilst the defendant had not paid the plaintiff a dollar, the plaintiff would have continued to send workers to the Sites month after month resulting in a total outstanding sum of over HK$4 million and without sending the defendant a letter of demand for payment.  There is also no statement of account from the plaintiff to the defendant at regular intervals showing the cumulative outstanding amount.  The plaintiff’s course of conduct is contrary to any business sense.  Even MrLeung agreed that he had never witnessed such an incident in his working life with the defendant since the 1970s (T4/101/25-102/10).

106.  The plaintiff’s story is even more incredible when its profit margin in this allege sub-contract is also taken into account.  The amount claimed in this action is HK$4,372,180.80.  It is made up of HK$4,415,600 for supply of labour and HK$214,750.80 for costs of materials supplied by the plaintiff (for which the plaintiff is not getting any profit).  The plaintiff gave credit to the defendant for HK$258,170 paid by the defendant to settle a labour dispute.  The net sum claimed is HK$4,415,600 + HK$214,750.80 – HK$258,170 = HK$4,372,180.80. 

107.  The plaintiff’s case is that it had supplied the workers through its labour leader or sub-contractor Mr Chan Kam Kui.  It paid Mr Chan HK$680 per man-day and charged the defendant HK$700 per man-day (T6/87/23-88/14).  It had paid Mr Chan a total sum of HK$4,289,440 and invoiced the defendant a total of HK$4,415,600 for the labour supplied.  Its profit out of this sub-contract for supply of labour is HK$126,160 (Table D5) (T7/3/5-10). If this is truthful that it had incurred HK$4,415,600 for a profit of HK$126,160 or less than 2.9%, and without issuing a simple demand letter, then it is really contrary to business sense. 

108.  The defendant’s conduct as alleged in the plaintiff’s case was also extraordinary. Despite the plaintiff having sent the defendant an invoice with accompanying records and documents once a month for 15 months, the defendant had not responded to any of these invoices and accompanying documents every month for 15 months.  Even if the defendant did not want to pay the invoices, I cannot see any reason why it should have kept quiet as if it had not received them.  Mr Leung again said that he did not know why there was such monthly failure which happened for 15 months (T3/115/17-118/5).

109.  If the invoices had indeed been sent to the defendant, as Mr Leung maintained, I think the defendant would have written to the plaintiff setting out the grounds of non-payment soon after the receipt of the first few invoices.  In that event, the dispute between the parties would have arisen very soon.  It would have resulted in a stoppage of supply of labour to the Sites.  The plaintiff would not have continued with the saga for 15 months.  But the defendant had not responded to the invoices.  The defendant says that it was not aware of the invoices until it received the fax letter of the plaintiff on 12 August 2005.  The absence of any response by the defendant to the invoices makes the defendant’s story credible.

110.  Mr Leung’s conduct is also worth consideration. He was aware that the sum allegedly due to the plaintiff was on the increase.  He said in oral evidence that he had drafted two Working Orders for the plaintiff. That was at three and five to six months respectively after the plaintiff had started supplying labour to the Sites.  But the drafts were not approved.  He then told his superior Mr KS Yeung that the defendant was not paying the plaintiff.  Mr Yeung raised it in a meeting of the defendant but could not secure payment for the plaintiff.  Mr Leung then just left the matter to rot and for the outstanding sum allegedly due to the plaintiff to increase month after month to over HK$4 million. 

111.  I think Mr Leung’s conduct in not alerting the defendant’s senior management of the problem is extraordinary.  If he was telling the truth, he should have known that a bombshell was developing.  He would certainly have told the defendant that either it should pay the plaintiff or to stop the plaintiff from sending any more workers to the Sites.  But he did not do either. 

112.  Furthermore, when Winice had the project management agreement with the defendant, Winice was under an obligation to inform the defendant of potential disputes. I agree with Mr Niehorster that it is inconceivable that Mr Leung would have failed to notify the defendant at an earlier stage had he indeed received the monthly invoices in issue from the plaintiff during October 2003 to December 2004. Such inconceivable conduct casts doubt on the plaintiff’s case.  I would also mention that there is nothing in the evidence to show that there was any draft Work Order with a date of three or five to six months from the plaintiff’s commencement of supplying labour to the Sites. 

Evidence of the works said to have been performed by the plaintiff

113.  Apart from the plaintiff’s case being beyond belief, the documents relied on by the plaintiff are also full of problems.

114.  Mr Chung said that the number of man-days supplied by the plaintiff at the Sites each day was recorded in:-

(i) 15 summary tables of daily attendance of workers which were attached to the plaintiff’s invoices; and

(ii) 15 sets of daily records of workers’ attendance bearing the workers’ names, site pass numbers and their signatures signifying their attendance on the dates marked on the record.

115.  Mr Leung said that he had instructed Mr David Wong to check the plaintiff’s daily records of workers’ attendance against the workers actual attendance at the Sites.  He thus believed that the daily records represented the number of man-days provided by the plaintiff.

116.  Mr Leung also said that after Mr David Wong had checked the daily records of a preceding month, the plaintiff would submit its invoice (together with the summary table of daily attendance, wage acknowledgements by the workers and receipts of material costs paid by the plaintiff) to the defendant for payment. 

117.  Mr Leung agreed that payment-related documents received by the project management team were routinely marked with an ink stamp showing the date of receipt, marked for action on the top right corner with Mr KS Yeung’s name in typeface and Mr Leung’s initials in handwriting indicating that Mr KS Yeung had directed Mr Leung to take action on the document (T2/122/12-127/13).  Mr Leung also confirmed in oral evidence that for every letter received by the defendant, someone would chop a date stamp on it (T4/52/22-53/16).  He further confirmed in oral evidence that this was also the practice at Winice (T4/87/21-25 and T5/8/9-14).  Yet each and every of the plaintiff’s invoices addressed to the defendant and sent month after month did not bear such date stamp or the typeface of KS Yeung's name.  There was also no initial of Mr Leung.  Mr Leung’s answer is that he did not remember why this happened (T3/119/1-123/16). 

118.  Furthermore, though Mr Leung said that he had forwarded all these invoices to the defendant every month, the original invoices (all without date stamp, KS Yeung’s name in typeface and Mr Leung’s initials as mentioned above) were in fact kept by Winice. They were only sent to the defendant together with other project documents in 2010.  Mr Leung again could not explain why this was so (T4/61/18-25). I have also referred to above the oddity of the defendant’s monthly failure to respond to any of the plaintiff’s 15 invoices and accompanying documents.

119.  There are also in the evidence two sets of invoices (quotations) bearing different signatures.  Mr Chung said that he had asked a colleague to re-send them each month after speaking to Mr Leung who told him that he had not received the document (T6/70/11-75/17).  However, Mr Leung said that he did not notice having received two invoices each month (T4/59/22-56/16) as alleged by Mr Chung.

120.  In addition, Mr Leung also admitted that he had received the original claims for payment from the plaintiff’s labour leader Mr Chan Kam Kui for the same months and for the same work but at a rate of HK$680 per man-day instead of HK$700 per man-day (T5/131/20- 132/22).  However, he said that he just ignored these claims by Mr Chan.  On the plaintiff’s case, there is no reason why Mr Chan would have sent his claims to Mr Leung or Winice or the defendant.  I also cannot understand why Mr Leung would have just ignored Mr Chan’s claims if he was telling the truth. 

121.  Mr Chung also said that the plaintiff had duly paid the wages to its workers since September 2003 for their work on the Sites except 12 workers for the period from 16 August to 15 November 2004 (who were paid in the labour dispute) and the workers acknowledged receipt of their wages by signing the wage acknowledgement.  The wage acknowledgement contained the workers’ names, their Hong Kong Identity Card numbers, site pass numbers and signatures.  But the amounts of wages received by the workers are not stated therein.  He also said that the plaintiff had in every month sent the defendant an invoice for payment.  Each invoice recorded the man-days provided at the Sites and the costs of materials paid by the plaintiff in advance in the preceding month.  The invoice had also attached to it:-

(i) a summary table of daily attendance of workers in the month;

(ii) the wage acknowledgement; and

(iii) receipts of costs of materials paid by the plaintiff.

122.  Mr Leung confirmed that he had received from the plaintiff during the construction period one invoice in each month.  He also confirmed in his witness statement and oral evidence that after receiving the invoices, he and Mr David Wong had checked and confirmed their accuracy, especially on the number of man-days and then passed them to the defendant every month.

123.  He further said that the defendant had to keep all the attendance records and wage acknowledgementsfor submission to JCO because the Main Contractor and JCO had to ensure that the defendant had engaged enough workers on the Sites as required by the KCRC contracts and had paid the workers.

124.  He also said that after the defendant had completed the P&D works in or about November 2004, Mr Leung had personally verified the number of man-days claimed by the plaintiff in all the invoices against the daily records. 

125.  In the light of these allegations, Mr Niehorsterreferred to the daily records of workers’ attendance of Honour Wealth.  They showed that back in 2002 there was a smooth processing system where such daily records were being date stamped upon receipt.  They have Mr KS Yeung’s initials in typeface in the stamped box, the relevant job number and Mr Leung’s initials written outside to signify Mr KS Yeung’s direction to Mr Leung to take action.  Mr David Wong’s signature was also at the bottom of the page (T5/47/15-50/20 and 55/11-25).

126.  However, the daily records of workers’ attendance prepared by the plaintiff do not have any date stamp on it.  They also do not have the initial of Mr KS Yeung in typeface.  The initial of Mr Leung and the relevant the job number are also not written thereon.  Mr David Wong also had not signed on them (T5/56/11-58/8).

127.  Without the date stamp chop on the invoices, there is nothing to show when or whether they had ever been received by the defendant.  I have also pointed out above that the original invoices were kept by Winice and were only sent to the defendant in 2010.  Without Mr KS Yeung’s initial on them, there is also no evidence that Mr Yeung had ever read them.  Mr Leung also agreed that in all probability, Mr Yeung had not read it (T4/58/4/59/18).  Mr Leung also accepted in oral evidence that if Mr David Wong did not sign these daily attendance records, logically it meant that he had not checked them (T5/58/22-60/9).  Furthermore, if Mr KS Yeung had not read them, there is no reason why they should have been sent to the defendant’s accounts department.  One therefore cannot tell if these records were prepared contemporaneously on a monthly basis per the actual attendance of workers or whether they were prepared at other times with fabrication and exaggeration.

The JEMIS system

128.  Mr Leung agreed that the defendant’s JEMIS system was for control over costs and revenue of projects (T3/39/14-40/14).  He regularly updated the invoices and quotations in the P&D works in the system.  He did so on the average once every two to three months (T3/54/15-56/3, 57/1-59/11, 61/19-24, 62/8-18, 63/5-13, 94/1-97/21 and 98/21-23). 

129.  However, by September 2004 when, on the plaintiff's case, the plaintiff had already sent the defendant invoices for HK$4 million, Mr Leung still had not input any of the sums in the invoices into JEMIS. He was cross-examined on why he had failed to regularly update the contract booking forms for the plaintiff’s invoices but had not overlooked the updating for quotations and Purchase Orders for other sub-contractors and suppliers.  He said he did not remember why there was such a big failure. 

130.  However, this failure, if it was indeed a failure, happened not just once or twice.  It was a systematic failure that happened to all 15 plaintiff’s monthly invoices.  There is nothing to explain why there could have been such a monthly systematic failure.  Mr Leung’s answer of not remembering the reason is not credible.  I do not accept his explanation that it was a mere failure on his part to do what he had been doing regularly.  He did not fail to do this for other contractors and suppliers(T3/98/1-18, 101/11-24, 107/10-12 and 114/19-115/6).

131.  The two draft contract booking forms prepared by Mr Leung and produced in evidence are dated 16 February and 13 April 2005.  It included the sum of HK$4,630,180.80 in respect of the workers which the plaintiff contends that it had supplied.  However, Mr Leung again confirmed that in all probability he had not submitted them to the defendant’s head office (T4/24/22 – 26/9, T4/24/22 – 26/9).

No wage acknowledgement sent to the defendant

132.  It is the plaintiff’s case that all the attendance records and wage acknowledgementshad been sent to the defendant which had in turn sent the same to JCO.  The reason being that the Main Contractor and JCO had to ensure that the defendant had engaged enough workers on the Sites as required by the KCRC contracts and had paid the workers. 

133.  However, the correspondence between the defendant and JCO clearly states that JCO had withheld interim payments to the defendant because the defendant had not providedto JCO records of paying its workers for April to November 2003. Eventually, Mr Leung had to sign on behalf of the defendant letters of indemnity to JCO rather than providing JCO with thewage acknowledgements to secure the release of interim payments (G/5156-5160).  Had the defendant been in possession of the plaintiff’s invoice and wage acknowledgements at that time, there was no reason that it would have taken the trouble of providing the indemnities to JCO and not the wage acknowledgements in order to receive payment.  Eventually Mr Leung also accepted that he had not sent the wage acknowledgements to the defendant (T5/146/10-147/20).

Did the plaintiff provide an unreasonably low labour supply to the Sites?

134.  JCO had by a letter dated 19 March 2004 complained that the progress of defendant was too slow to ensure completion because of the unreasonably low labour supply to complete the installation and subsequent testing and commissioning (D9/4290-4291).  JCO by a schedule attached to the letter required the defendant to supply an average of 8 workers per day to the Sites (2 man-days per station per day).  However, the defendant’s records suggested that for at least the week before JCO’s letter, the defendant already had 8 workers at the Sites.  Nevertheless, the defendant, for no obvious reason, did not write back and say that they had already supplied enough workers at the Sites (T6/6/23 – 8/21). Its silence suggests that JCO had made a rightful complaint.

Inconsistencies between attendance records of the Main Contractor and those of the plaintiff

135.  There are in the evidence some Daily Record Sheets for short periods which were kept by the Main Contractor.  These records had been checked, signed and countersigned by the foreman/engineer of the Main Contractor, the construction manager and the subcontractor’s representative (D10/4553–D10/4567 and D2/2649-D2/2654).  In contrast, those submitted by the plaintiff were not signed by anyone (C7/818).  Mr Leung accepted that the workers listed in the Main Contractor’s Daily Record Sheets should also appear on the plaintiff’s daily attendance records if the plaintiff’s records were correct (T6/14/11-16).  However, there were inconsistencies between the Main Contractor’s records and the plaintiff’s records (T6/11/6 – 22/12). A few workers who were said to have worked on a number of days in the Main Contractor’s records were not recordedin the plaintiff’s records to have worked on the same days. Mr Leung accepted that there were these inconsistencies.  He also accepted that in all probability the Main Contractor’s records were more accurate (T6/22/5-12) because they had three signatures as compared to no signature in the plaintiff’s records.

136.  Though the plaintiff may argue that the Main Contractor’s records show that it had supplied more man-days than it is claiming now and it had thus under claimed the defendant, the better view on these inconsistencies, in the light of the problems of the plaintiff’s documents, is that they were caused by the plaintiff’s records not having been prepared per the actual attendance of the workers.

Had the plaintiff supplied the claimed quantity of labour to the project?

137.  The plaintiff’s claim is for: HK$4,415,600 (labour supply) + HK$214,750.80 (materials) – HK$258,170 (wages paid by the defendant) = HK$4,372,180.80.  The sum of HK$4,415,600 is for 6,308 man-days at HK$700 per day. 

138.  There are letters from JCO to the defendant which show that at the material times a few of those who had purportedly been sent by the plaintiff to work at the Sites were indeed being found working at the Sites.  The defendant had also paid the plaintiff’s workers in a labour dispute in November 2004.  Hence, even though the plaintiff’s evidence of having supplied labour to the Sitesis unsatisfactory, the defendant still does not say that the whole claim is just a bogus one.  The defendant is just saying that the plaintiff’s evidence is so unreliable that it cannot prove on a balance of probability that the plaintiff had supplied 6,308 man-days for carrying out the P&D works.

139.  The defendant entered into the KCRC contracts with JCO for the P&D works at the Sites in 2002 for HK$3,550,000. The price covered both labour and materials.  Before the plaintiff appeared at the scene, the defendant had engaged two subcontractors to undertake the P&D works at the Sites: namely Honour Wealth and Waybo.

140.  The defendant engaged Honour Wealth to undertake certain concealed pipe works before the defendant could procure a P&D subcontractor to assist it to complete the works.  Honour Wealth was engaged on a day work basis to undertake the concealed pipe works.  That mode of engagement was very similar to the mode of engagement of the plaintiff.  The documentation submitted by Honour Wealth had gone through a system of processing and had a number of indicia like date stamps and initials of responsible personnel marked on them. However, as I have pointed out above, the documentation allegedly submitted by the plaintiff to the defendant did not bear the same indicia of having been so processed.    

141.  The defendant issued a Purchase Order to Waybo in December 2002 for it to undertake the balance of the P&D works left behind by Honour Wealth.  It was in fact the bulk of the works.  The Purchase Order was for a total sum of HK$3,300,000.  Part of it at HK$1,500,000 was for materials. The balance of HK$1,800,000 was the value for the supply of labour by Waybo to complete the remaining P&D works.  At the rate of HK$700 per man-day, this sum was for about 2,570 man-days.  Mr Leung accepted this analysis (T5/78/17 – 79/10). 

142.  Mr Leung certified that Waybo had achieved 100% completion in July 2003.  He explained that Waybo had in fact not completed all the works under the Purchase Order, but it had also done some variation works. That part of the original works under the Purchase Order plus the variation works done by Waybo equaled to 100% of the original works.  Hence, he certified that Waybo had achieved 100% completion. 

143.  The defendant in Payment Application No. 4 dated 8 August 2003 applied for payment for completion of 68% of its original scope of works it achieved at the end of July 2003.  By the end of November 2003 (Payment Application No. 5), the application for payment was for 80% completion of the works.  By the end of February 2004, it increased to 89%.  At the end of May 2004 (Payment Application No. 6), it reached 97% as confirmed by Mr Leung (by reference to table D1) (T5/85/12 – 86/3).

144.  The corresponding assessment by JCO was not as high as the defendant’s.  JCO certified that there was 56% (and not 68%) completion of the original scope of works by the end of July 2003 and 74% (and not 89%)completion by the end February 2004 (T6/125/2-4). 

145.  DW1 Mr Fong said in re-examination that he would look at the actual amount of work done and certify accordingly.  Furthermore, he would include the value of the rectification works as part of the value of the outstanding work in the contract.  That means the 44% value for the outstanding works as at the end of July 2003 included the value of the then outstanding defects rectification works (T6/125/5-126/7). The same applied to the value of the 26% outstanding works as at the end of February 2004.

146.  Honour Wealth had provided 457 man-days to carry out the concealed pipe works.  Waybo had provided about 2,570 man-days for HK$1.8 million at the rate of HK$700 per man-day.  The defendant had also paid HK$450,375 to Waybo’s labours for their works from 16 June 2003 to 16 August 2003.  That amounted to 643.4 man-days at the same rate.  The total is about 3,671 man-days.  That is supposedly for the whole of the original scope of the P&D works. Mr Niehorster thus submitted that the plaintiff’s claim of 6,308 man-days (171% of 3,671 man-days) for completing the remaining works (assessed by JCO at 44%) is extraordinary and erroneous.  It is so excessive that it cannot be believed.  I agreewith Mr Niehorster that this is certainly a meritorious point.

The labour supplyrequired since March 2004?

147.  Another aspect for assessing the authenticity of the plaintiff’s claim is to look at JCO’s estimate of the man-days required from March 2004 onwards.I have already referred to JCOs’ letter dated 19 March 2004 to the defendant (D9/4290-4291).  The letter had a schedule of an estimate of the number of man-days required to complete the remainder of the P&D works from mid-March 2004 onwards. Mr Leung confirmed that the estimate was not a tight one (T5/87/19 – 89/7, T5/91/19 – 92/5).  DW1 Mr Fong further said that usually he would be quite conservative and ask for more workers.  Since the contract between JCO and the defendant was a lump sum contract, JCO therefore did not have to pay more money to the defendant even if the defendant should be told to supply more workers (T6/120/20 – 122/17).  

148.  Mr Leung accepted that JCO had made a generous estimate in the letter dated 19 March 2004 that 492 man-days were required to complete all the works (T5/93/8 – 15).  However, the plaintiff is claiming 3,567 man-days for the period from March to November 2004.  That is a seven-fold increase on JCO’s generous estimate.  Leung, who was the project manager of this project, was unable to give any meaningful answer to this unthinkable perplexity (T5/95/7 – 96/14). 

149.  Another example of absurdity is the provision of workers at the Wu Kai Sha station for the month of May 2004.  The plaintiff’s Daily Worker Records recorded 5.8 times more man-days than as required by the estimate of JCO (T5/99/9–T5/101/20).

150.  Mr Leung tried to use the variation works to justify the amount of manpower supplied by the plaintiff which was more than double of that supplied by Honour Wealth and Waybo together (T5/102/24–103/9). He had prepared 21 variation claims for the defendant for submission to JCO.  The most substantial one was VQ-16.  He however agreed in cross-examination that the variation works in this VQ were probably carried out in 2003 and they would not have affected the requirement of manpower supply for the post-19 March 2004 period (T5/114/13–25).

151.  Furthermore, DW1 Mr Fong’s evidence was that there were not many variations to the P&D works (T6/115/7–116/9). In a letter dated 25 November 2005 from Mr Fong on behalf of JCO to the defendant (C20/2244-221), Mr Fong said “We would remind you that your submitted valuation has been exaggerated with additional costs of scaffolding, scissors platforms as well as testing and commissioning which were already included in your scope of original subcontract.” (T6/116/11-117/19).

152.  In the light of the above, there is no reliable evidence to support the plaintiff’s claim of having supplied 5.8 times more man power than estimated by JCO to be necessary.

153.  I would also mention that the plaintiff has produced two cheque copies evidencing its payment to Chan Kam Kui a total sum of HK$793,600 (D9/4372-4376).  However, the cheques alone are not specifically referable to any particular project or works. There is also no document to substantiate what these payments were for.  They cannot support the plaintiff’s claim herein.

Claim for damages for breach of contract

154.  Mr Niehorster also submitted that since the plaintiff had failed to establish that the invoices (or quotations) had been received by the defendant each month or that the work claimed had been done, the best that the plaintiff could hope to succeed would be a claim for damages for breach of contract. However, the plaintiff has failed to prove its damages because it has not disclosed any banking or financial document to prove its costs.

155.  I do not think this approach is correct. The plaintiff is claiming remuneration for work done pursuant to the subcontract with the defendant.  Either the plaintiff can establish its claim and obtain judgment for payment for the work done or it will fail in the claim.  On the basis of the plaintiff’s pleaded case, I cannot see how the plaintiff can seek damages on the ground of the defendant’s breach of contract.  There is no suggestion in the pleading or evidence that the defendant had wrongfully or otherwise prevented the plaintiff from fulfilling its part of the sub-contract.  If I should find that the plaintiff’s evidence is enough to establish its claim, I would give judgment to the plaintiff. This is so even if the plaintiff cannot prove how it had financed its operations. The plaintiff’s failure to produce any banking and financial documents makes its story unbelievable.  These documents are relevant on credibility because of the huge sum required to finance the operation and the defendant’s repeated request for discovery of these documents.  But there is no legal requirement for the plaintiff to produce such documents before it can succeed in the claim as pleaded.  The plaintiff need not account to the defendant the costs it incurred for performing the sub-contract. If all other aspects of the plaintiff’s evidence are credible and sound and can establish the claim, the failure of the plaintiff in making discovery of these documents may not bar the plaintiff from judgment.

The defendant was aware of the plaintiff’s work and delivery of invoices (quotations) to the defendant’s head office

156.  In answer to the defendant’s case that the plaintiff’s invoices (quotations) had never been sent to the defendant’s head office during the construction period, Mr Lam, counsel for the plaintiff submitted that it is unbelievable that the defendant was not aware of the existence of the plaintiff or the plaintiff’s claim during the construction period.  

157.  He referred to the JME Meeting Notes dated 9 July 2004, 5 August 2004 and 17 August 2004 which recorded some reports made to the meetings that the expected loss to the defendant in the KCRC contracts was at HK$3-4 million and later at less HK$3 million.  According to DW4 Mr Yu, the expected loss was reported to the meeting by the representatives of Winice and some employees of the defendant (T7/63/3-21). 

158.  The above reporting of loss was contrary to the information contained in a contract booking form dated 21 September 2004 (D4/3048-3049) which recorded an expected profit of HK$103,450.84.  This form also stated that the subcontractor cost was at HK$2,129,148.16.  It was only HK$7,200 more than the subcontractor cost of HK$2,121,948.16 as recorded in JEMIS as at 27 September 2003 (D4/3033).  Mr Lam submitted that it was impossible to have incurred just HK$7,200 subcontractor cost in the course of a year when a lot of work had been done in the meantime.  Hence, this form dated 21 September 2004 and JEMIS must have under-recorded the subcontractor’s cost so as to show a profit from the project.  He said that this was done for some unknown reason of the defendant.  But the defendant knew from the JME meetings that it was making a loss from the project and the loss was because of the HK$4 million owed to the plaintiff.  Hence, the defendant must be aware of the plaintiff.  He also submitted that it was possible that the defendant might have failed to disclose some JME Meeting minutes.

159.  Mr Lam further submitted that this argument matched with the plaintiff’s case that Mr Leung believed that Mr David Wong had checked the daily worker records and Mr Leung had sent the same to the defendant’s head office on a monthly basis. 

160.  The effect of this submission is that the defendant had under recorded the subcontractor’s cost in JEMIS so as to maintain in the computer system a profit which was not there.  In order to under record the loss, the defendant deliberately did not input the indebtedness to the plaintiff whilst it was fully aware of the debt which was owed to the plaintiff. 

161.  My first observation on this submission is that Mr Lam has not put this to any of the defendant’s witnesses in particular DW4 Mr Yu who was ultimately responsible for the P&D project and supervised the work of Mr KF Leung.  Therefore, he is not entitled to make it now.

162.  Secondly, if this conjecture by Mr Lam really has any basis, the plaintiff could have led evidence on it.  The reason being that it was the plaintiff’s witness Mr Leung who was the project manager of the P&D works.  Mr Leung was also responsible for inputting information of the P&D works into JEMIS.  He updated the information into the system once every two to three months (T3/54/15-56/3, 57/1-59/11, 61/19-24, 62/8-18, 63/5-13, 94/1-97/21 and 98/21-23).  He was cross-examined on his failure to regularly update the JEMIS system with contract booking forms for the plaintiff’s invoices but did not overlook the updating for quotations and Purchase Orders for other sub-contractors and suppliers.  He said he did not remember why there was such a big failurewhich happened once a month(T3/98/1-18, 101/11-24, 107/10-12 and 114/19-115/6).  Mr Leung’s evidencethus defeats this submission in total.

163.  Thirdly, there was no mention of the plaintiff’s name in any of the defendant’s documents or computer system until 21 September 2004 when a Contract Booking Form of that date referred to the plaintiff (D3/3048-3049).  There is no reason for the defendant not to input the plaintiff’s name into its computer system if it had engaged the plaintiff to start working in the P&D works.  There was not yet any expected loss to conceal in about September 2003 when the plaintiff was allegedly told to start working (contract booking forms dated 7 July 2003 (D4/3027) and 29 September 2003 (D4/3029)).

164.  Regarding the daily worker records, Mr Leung’s evidence is contrary to this submission.  Mr Leung agreed that the absence of Mr David Wong’s signature on the plaintiff’s daily worker records logically meant that Mr Wong had not checked the same (T5/58/22-60/9).  Unlike the daily worker records of Honour Wealth, the plaintiff’s records had also not been read by Mr KS Yeung (T4/58/4/59/18).  It was thus unlikely that the plaintiff’s records would have been sent to the defendant’s head office.

165.  On the discovery of JME Meeting minutes, I do not think Mr Lam is entitled to make the conjecture that the defendant might have deliberately failed to make discovery of the same.  The minutes produced in evidence were disclosed by the plaintiff in the course of the trial.  I did say to Mr Lam that if he thought that the defendant might have more of these minutes, he could apply for specific discovery of the same.  He did not.  I do not think he can criticize the defendant for not producing any.

166.  For the above reasons, I find this submission of the plaintiff unmeritorious.

Are delivery and checking of the plaintiff’s invoices the defendant’s internal matters?

167.  Mr Lam has an alternative submission that whether Mr Leung had passed the invoices to the defendant’s head office and whether the defendant’s representatives had checked them are the defendant’s internal matters.  It does not change the fact that the plaintiff had supplied labour and materials to the defendant. 

168.  This is a misapprehension of the defendant’s position on the peculiarity of these documents.  The defendant is saying that these documents had problematic features that show that they had not been sent to the defendant’s head office as alleged by the plaintiff and its witness Mr Leung.

The plaintiff’s small profit margin

169.  Regarding the plaintiff’s small profit margin of HK$20 out of HK$700 per man-day, Mr Lam submitted that for a large company like the defendant, its profit margin was only estimated at HK$284,000 which included office overheads and the costs for engineers and management.  Hence, it is not surprising for the plaintiff to have earned a small profit margin.   

170.  The small profit margin is not the only point of the defendant.  I agree that this point alone would not be fatal to the plaintiff’s case.  It is this point plus all the other points that make the plaintiff’s case difficult to succeed.  I also note that the plaintiff did not even send the defendant a demand letter in the light of the small profit margin and huge sum outstanding. There is also no financial or accounting evidence to support the plaintiff’s case. Hence, this submission does not assist the plaintiff.

Whether the court can rely on the plaintiff’s evidence as proof of the amount of labour/materials claimed?

171.  Mr Lam said that the defendant had not pleaded or run a case that the plaintiff’s case was a fabrication or an exaggeration. Therefore, after the plaintiff has proved a contractual relationship between the parties and the supply of labours/materials by the plaintiff, the only question is whether the plaintiff’s evidence can be relied upon as the proof for the amount of labour and materials claimed by the plaintiff.  Mr Lam submitted that the answer to this question must be “yes” especially in the light of the large volume of daily worker records provided by the plaintiff.

172.  On the accuracy of the plaintiff’s daily worker records and its comparison with the Main Contractor’s daily record sheets, he submitted the Main Contractor’s records are by no means more accurate.  He said the Main Contractor’s records are only available for limited periods of time and cannot reflect the labour attendance for the whole period from September 2003 to November 2004.  But I cannot see why that is a reason to say that the plaintiff’s records are more accurate. 

173.  Mr Lam also said that the labour dispute records (C7/951-955 & D10/4595-4599) matched the plaintiff’s daily record sheets almost exactly subject to a few small differences.  Furthermore, there was a discrepancy between the Main Contractor’s records and the labour dispute record where a Mr Kung Kin Kwong was recorded to have worked for 13 days in October 2004 (D10/4550-4562) but only claimed three days wages for October 2004 in the labour dispute(C7/953 or D10/4597).  The labour dispute record is however in line the plaintiff’s daily workers records.

174.  I think the discrepancy between the labour dispute record and the Main Contractor’s record is because the worker only claimed the shortfall of wages in the labour dispute.  I do not think the Main Contractor’s record, which has been verified by three signatories representing the Main Contractor and the subcontractor, would have recorded a worker’s presence for 13 days when the worker was there for only three days. 

175.  Regarding the resemblance between the plaintiff’s records and the labour dispute records, I think it would be surprising for the plaintiff to have produced a set of records at great variance with the labour dispute records bearing in mind that the labour dispute records had been sent by the defendant to the plaintiff for the purpose of the defendant’s claim of reimbursement.  Alternatively, it was likely that the labour dispute records were compiled on the basis of the records then made available by the plaintiff to the people handling the dispute. 

176.  Mr Lam also referred to the evidence of DW3 Mr Iu on the checking of records.  Mr Iu said in his witness statement that in a labour dispute, the defendant would usually check the attendance records made by the workers which would include the dates, names and signatures of the workers. The defendant would also check the rates claimed to see if they were reasonable. Mr Lam submitted that the defendant must have checked and verified the workers’ claims against the attendance records before paying them the sum of HK$258,170.  I have already held that the labour dispute records might have been compiled according to the recordsthen made available by the plaintiff. I cannot see how this submission can advance the plaintiff’s case any further.

177.  Mr Lam also referred to a record of the Main Contractor which says that 11 workers (including two of the P&D workers) had worked at Wu Kai Sha station on Sunday, 5 September 2004 (D2/2624).  He submitted that this record was problematic as the workers should not have worked on a Sunday. I think the date on this record could have been 6 September as I took it to be so at the trial.  The summary sheet on D2/2622 of course repeats the error in of date in D2/2624 if that date (5 September) was an error.  I would also note that the plaintiff’s monthly summary for September 2004 stated that it had 17 workers at the Sites on 6 September 2004 (C6/777-778 or C16/1891-1892) with three workers at the Wu Kai Sha station (C16/1912-1912T).  But Mr Lo Chi Man did not feature in the Main Contractor’s record for that day (D2/2624) assuming that the date on this page should be 6 September 2004.  This may well be a discrepancy between the Main Contractor’s record and the plaintiff’s record.

Whether it would have been necessary for the plaintiff to have provided 6,308 man-days

178.  Mr Lam further referred to the variation claims made by the defendant to JCO totaling HK$3,700,619.  He said the variation claims had been endorsed by DW4 Mr Yu. 

179.  He then referred to the amounts incurred by the defendant for engaging Honour Wealth and Waybo up to about mid-August 2003 which was at HK$2,645,615 (including the payment in a labour dispute to Waybo’s workers). 

180.  He then submitted that it was reasonable for the plaintiff to have incurred 6,308 man-days for the 15 months from September 2003 to November 2004 to finish the balance of the works in the original scope of the KCRC contracts and the variation works at HK$3,700,619. 

181.  However, this submission is based on the assumption that the alleged variation works totaling HK$3,700,619 was justified. Mr Leung has admitted that he was the author of all variation claims.  Mr Yu said in oral evidence that he endorsed these claims because he trusted Mr Leung and he believed that the claims had been checked by his surveyor Mr Herbert Hung (D7/52/29-54/15). However, DW1 Mr Fong has said that there were not many variations to the P&D works (T6/115/7–116/9).  He had also written a letter dated 25 November 2005 on behalf of JCO to the defendant (C20/2244-221) on the variations saying that the defendant’s “valuation has been exaggerated with additional costs of scaffolding, scissors platforms as well as testing and commissioning which were already included in your scope of original subcontract”.  There is no evidence that the variation claims had been proved to or accepted by JCO or that the defendant had succeeded in claiming them by litigation, arbitration or otherwise.  Mr Niehorster has indeed confirmed to me that the defendant had not resorted to litigation or arbitration to pursue the rejected variation claims (which constituted the great bulk of such claims).  Hence, the plaintiff cannot rely on the unproven variation claims to advance its claim.

Correlation between material costs incurred and labour supply

182.  Mr Lam then submitted that there should be some correlation between materials costs incurred on the one hand and progress of P&D installation works or labour costs on the other.  The JEMIS system showed that the defendant had incurred HK$1,045,505.46 for materials up to 27 September 2003.  The amount of labour costs incurred up to that date in JEMIS was HK$2,121,948.16 double of the material costs.  The defendant’s final material costs were at HK$2,197,422.46. The labour costs incurred should thus be at HK$4,458,570.17 (including the HK$2,645,615 paid to Honour Wealth and Waybo).  Mr Lam then submitted that if the costs for testing and commissioning and remedying defects are included, the plaintiff’s claim for HK$4,630,350.80 is not unreasonable. 

183.  The sum of HK$4,630,350.80 included material costs at HK$214,750.80.  The plaintiff’s claim for 6,308 man-days should have a worth of HK$4,415,600.  If this sum is added to the sums paid to Honour Wealth and Waybo, the total on labour costs will be at HK$7,061,215 rather than the sum of HK$4,458,570.17 projected above.  The difference is HK$2,602,644.  The difference is nearly the total paid to Honour Wealth and Waybo.  I cannot imagine how the costs for testing, commissioning and remedying defects could be so substantial.  I think this submission by Mr Lam really shows how unreasonable the plaintiff’s claim is. 

184.  In any case, there is no evidence to support Mr Lam’s guess of such a correlation between materials costs and labour costs.  This submission does not assist the plaintiff.

JCO’s estimate of labour requirement

185.  Mr Lam then criticized JCO’s estimate of labour requirement from mid-march 2004 onwards in the letter dated 19 March 2004. JCO’s estimated that 492 man-days were required to complete the final installation, testing and commissioning (D9/4290-4291).  Mr Lam submitted that this was a wrong estimate as there was 26% of works remain to be done from about 23 March 2004. The defendant had used 3,671 man-days (provided by Honour Wealth and Waybo) to complete 56% of works up to 8 August 2003 as assessed by JCO (table D1).  By pro rata calculation, it required (3,761 x 26%/56% =) 1,704 man-days to complete the remaining 26% of works.  This did not include the man-days for the variation works claimed by the defendant and for testing and commissioning.

186.  DW1 Mr Fong has dealt with this issue in his cross-examination.  He said the 26% works included the making good of defects.  He maintained that 492 man-days were enough as the works were to be completed in a few months (as stated in his schedule of estimate) (T6/118/11-122/17).  I accept his evidence as that was based on his contemporaneous letter dated 19 March 2004which was not contradicted by any reply from the defendant, Winice or Mr Leung.  

Costs of materials

187.  The costs of materials at HK$214,750.80 are claimed on the same basis as the labour costs.  I have already held above that since there was only a conditional contract between the parties, the plaintiff cannot recover these costs on the same basis either.  I have however directed the parties to submit individually on these costs, I would therefore consider this claim for costs not as a contractual claim but as a claim for reimbursements as the plaintiff’s case appears to be that it had purchased the materials on behalf of the defendant and is seeking reimbursements. 

188.  The plaintiff’s case is that its supporting invoices/receipts for the costs of materials were appended to the invoices submitted to the defendant on a monthly basis.  However, there is grave doubt as pointed out above on whether the invoices/receipts had been submitted to the defendant on a monthly basis.  The same doubt would therefore exist on whether these supporting invoices had been submitted to the defendant.

189.  Furthermore, the invoices/receipts were addressed to parties other than the plaintiff and the plaintiff has supplied no evidence to show that it had paid for the materials either directly or by paying these parties.

190.  Mr Lam submitted that apart from the invoices/receipts for materials purchased, there was a contract booking form of the defendant dated 21 September 2004 with an attachment saying that HK$218,565.10 was “to be paid” for the plaintiff’s sundries materials (D4/3048-3049).  (The form was signed by Mr KS Yeung, Mr David Wong, the Executive Director of the defendant and an unknown person (T4/107-23 to 108-11)). Mr Lam said that this shows the defendant’s awareness of the existence of the plaintiff as its subcontractor at the Sites which provided the sundries and materials to it. 

191.  However, apart from the evidence that such form was prepared by Mr Leung, there is no evidence on how and why the form was approved by the defendant.  This was one of the documents kept by Winice and returned to the defendant in 2010.  Mr Leung also said that he could not tell why he did not input the information on this form into JEMIS (T3/112/7-114/7).  In the light of such sparse information on this contract booking form and the annexure, it cannot support any decision in favour of the plaintiff.  

192.  Mr Lam also submitted that whether the plaintiff had fully settled the payment with the material suppliers is a matter between the plaintiff and its material suppliers and is of no concern to the defendant. He also submitted that the addressees of the invoices/receipts are irrelevant as the plaintiff had kept the originals of the receipts (or invoices together with delivery notes).  It is natural that whoever had paid the materials would keep the originals of the receipts.  The defendant has also never said it had paid for the sundries and materials the costs of which are now claimed by the plaintiff. 

193.  I disagree.  This is not for supply of materials.  This is in the nature of reimbursement of expenses.  The plaintiff therefore has to prove that it has already paid the suppliers before it can be entitled to the reimbursements. 

Decision

194.  I have already held that there was only a conditional contract between the parties.  That barred the plaintiff’s claim. There is also no plea of quantum meruit.

195.  Even if that finding is wrong, I do not think the evidence adduced by the plaintiff to establish its supply of labour and materials to the defendant is reliable and I cannot enter judgment for its claim.  The plaintiff’s evidence is dubious and unreliable.  The evidence as corroborated by the defendant’s evidence only proved that some of its workers had worked at the Sites on some days.  But there is no reliable evidence to show how many workers had worked on what dates at which of the stations. 

196.  Though the defendant has not pleaded that the plaintiff’s claim is an exaggerated one or contains fabrication, it does not stop me from finding on the evidence that this is a claim full of exaggerations and fabrications.  There is no evidence that the plaintiff was financially capable to defray the alleged payments to the workers and for the purchase of the materials.  The evidence of its two witnesses Mr Chung and Mr Leung are incredible and unbelievable.  Mr Chung painted a most curious situation that even Mr Leung had not witnessed in his working life since the 1970s.  Mr Leung however has also failed to explain many oddities that involved him.  I do not accept that the plaintiff’s invoices (quotations) and the purported annexeures (including the monthly summary of attendance by workers and the daily worker records) had been sent to the defendant’s head office by Mr Leung.  I also do not accept that the plaintiff had paid the workers directly or through its worker Chan or at all.  The lack of financial and accounting evidence is fatal to the plaintiff on this point. 

197.  On the whole, I find that the plaintiff has not proved its case on a balance of probability.  I think the plaintiff was trying to perpetrate a dishonest claim in this action. 

198.  In the light of my findings above, I dismiss this action.  I also make a costs order nisi that the plaintiff do pay the defendant the costs of this action.

HCCT 33/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 33 OF 2007

____________

____________

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DECISION
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1.  There are three summonses. Two of them are issued by the plaintiff and the third one issued by the defendant. The first one is a Case Management Summons. The second one is for leave to file the reply out of time. The third is to strike out the plaintiff’s claim.

The pleadings

2.  The plaintiff claims in the statement of claim that it had an agreement which is contained in or evidenced by its quotations and invoices and the defendant’s Instruction to Sub-contractor of ref. EMSCD/KFL/J62F210066 to the plaintiff and dated 12 September 2003 (“the Instruction to Sub-contractor”). The agreement was for the supply of labour and materials by the plaintiff to carry out the instructed P&D Installation Work for the defendant at City One, Ma On Shan, Shek Mun and Wu Kai Sha stations in relation to the KCRC East Rail Extension Contract Nos TCC 200 & TCC 300.

3.  The plaintiff pleaded that all quotations and invoices had been served on the defendant on various dates.  The particulars of invoices show 15 invoices for a total value of HK$4,630,350.80.  The plaintiff also pleaded that it achieved practical completion of the agreement in December 2004.

4.  The plaintiff further pleaded that the defendant had paid HK$258,170 to the plaintiff’s workers on or about 6 December 2004 on behalf of the plaintiff to settle the workers’ claims for wages under a Labour Department file no. LR 36-2004-2840 as evidenced by a letter dated 6 December 2004 from the defendant to the plaintiff.  The defendant said in the letter that the sum of HK$258,170 would be deducted from any payment due from the defendant to the plaintiff under contracts nos TCC-200 and TCC-300.

5.  The plaintiff then claims the net sum of HK$4,372,180.80 from the defendant.

6.  The defendant admitted in its defence that it had issued the Instruction to Sub-contractor to the plaintiff, but it had only received the invoices from the plaintiff in or about mid-August 2005.

7.  The defendant denied that the Instruction to Sub-contractor had any contractual effect or that there was an agreement between the plaintiff and the defendant or that the defendant had any obligation to pay the plaintiff.

8.  The defendant further pleaded that the Instruction to Sub-contractor had stated that no money was payable unless a Work Order had been issued by the defendant and in fact no Work Order had been issued.

9.  The provision in the Instruction to Sub-contractor on the issuance of the Work Order is as follows:

“Please Note:

This ITS [Instruction to Subcontractor] must be confirmed by a WORK ORDER.  Under no circumstances shall any money be paid without issue of a WO.”

10.  The effect of the Work Order is to confirm the Instruction to Sub-contractor.  Without the Work Order, the Instruction to Sub-contractor is not confirmed and work cannot be commenced on pain of no payment.

11.  The defendant then put the plaintiff to strict proof of the plaintiff’s involvement in the works or its practical completion.

12.  The defendant admitted that it had issued to the plaintiff the letter dated 6 December 2004 in respect of the plaintiff’s failure to pay wages, but did not admit that the workers were employed by the plaintiff or that they had anything to do with the defendant’s works at the KCRC site or elsewhere.

13.  The defendant pleaded that it paid the sum of HK$258,170 to the workers to defuse a protest by persons at the KCRC site in which the defendant was working so as to avoid disruption to its works.

The chronology

14.  The following is a chronology taken from the skeleton submissions of Mr Niehorster, counsel for the defendant with some additions:

Event	Date
Letter of Instruction to Sub-Contractor	12 September 2003
Period in relation to which the plaintiff claims for labour wages	18 September 2003 to 30 November 2004
Statement of claim	23 June 2006
Defence	2 August 2006
Defendant indicated consent for Reply to be filed out of time	1 September 2006
Notice of Change of plaintiff’s solicitors from Leung and Wan to Huen & Partners	10 October 2006
Consent Summons for exchange of list of documents 21 days thereafter (i.e. 8 December 2006), inspection 14 days later (22 December 2006) and witness statements 60 days after exchange of lists (6 February 2007)	17 November 2006
Plaintiff’s List of Documents	11 December 2006
Defendant’s List of Documents	14 December 2006
Plaintiff’s Supplemental List of Documents	11 January 2007
Defendant suggested to arrange a time to exchange witness statements	12 February 2007
Plaintiff’s Second Supplemental List of Documents	15 February 2007
Transfer to Construction and Arbitration List taken out by the defendant’s solicitors	22 March 2007
Notice of Change of Address for Service of Huen & Partners	7 March 2008
Plaintiff’s Notice of Intention to Proceed	15 July 2008
Defendant’s Notice of Change of Solicitors from Tanner De Witt to JSM	15 August 2008
Notice of Change of plaintiff’s solicitors under HCA 1350/2006 from Huen & Partners to Cheung & Liu	28 October 2011
Notice of Change of plaintiff’s solicitors under HCCT 33/2007 from Huen & Partners to Cheung & Liu	1 November 2011
Plaintiff’s Notice of Intention to Proceed	16 November 2011
Notice of Change of defendant’s solicitors from JSM to Holman Fenwick Willan	30 November 2011
Summons for leave to file and serve Reply	21 August 2012
Case Management Summons	21 August 2012
Defendant’s summons to strike out the plaintiff’s claim	17 September 2012
Plaintiff’s Third Supplemental List of Documents	19 September 2012
plaintiff’s summons to withdraw summons filed on 21 August 2012 for leave to file the reply and for leave to file and serve a revised reply	15 November 2012

The striking out summons

15.  The defendant applied to strike out the claim on the ground that the plaintiff had been guilty of inordinate and inexcusable delay in proceeding with this action to the prejudice of the defendant or it was otherwise an abuse of the process of the court. 

16.  Both parties refer to Wing Fai Construction Co Ltd (in liquidation) v Yip Kwong Robert [2012] 1 HKLRD 589 at §§ 23-29, 31-34, 47 and 64-80.  The defendant says that there was inordinate and inexcusable delay on the part of the plaintiff in the conduct of this action.  The plaintiff accepts that there has been inordinate delay.  Its excuse is financial difficulty and that it only had funds in late 2011 to engage its solicitors to continue with the action.  However, Mr Chan, counsel for the plaintiff is not arguing that the delay is excusable.

17.  Mr Niehorster submitted for the defendant that the dilatory conduct of the plaintiff is an abuse of processes in itself.  Mr Chan disagreed.

18.  I agree with Mr Chan that the delay alone would not constitute abuse.  Furthermore, the defendant also has not taken any step in the action since 22 March 2007.  Since the CJR, which took effect on 2 April 2009, the defendant should not have adopted such passive attitude (see Wing Fai at § 75(2) to (6)).

19.  Mr Niehorster then complained that the statement of claim did not set out some essential terms of the agreement like agreed hourly or daily rate of workers and payment periods.  However, these are matters that the defendant could have asked for by requesting for further and better particulars or interrogatory.

20.  Mr Niehorster then complained about the insufficiency of documentation disclosed by the plaintiff.  He in oral submissions in particular referred to the absence of any bank statement from the plaintiff to show how the plaintiff had paid its workers.  But this is a matter of specific discovery that the defendant could and should have conducted before it proposed to exchange witness statements on 12 March 2007.

21.  The defendant then submitted that the plaintiff’s delay has caused prejudice to the defendant.

22.  The defendant has already prepared witness statements by Mr Hung Sui Chi, Herbert, a Quantity Surveyor and Mr Fong Sai Keung, an Estimating Manager.  The defendant’s solicitors had suggested to the plaintiff’s solicitors on 12 March 2007 to arrange a time for exchange of witness statements.  Hence, the defendant has not been prejudiced on the collection of evidence.

23.  The defendant then submitted that it is prejudiced in that it cannot collect evidence on an oral agreement pleaded by the plaintiff in the draft reply.  If that should be the case, that would only operate against the pleading of the oral agreement in the reply, not to strike out the claim.

24.  Since the defendant cannot identify any prejudice, I would dismiss its application to strike out.

The draft reply

25.  Despite the defendant’s consent given on 1 September 2006 for the reply to be filed out of time, the plaintiff did not file it thereafter. It then issued a summons on 21 August 2012 for leave to file it.  It issued another summons on 15 November 2012 to withdraw the previous summons and for leave to file a revised draft reply.

26.  Regarding the defence point that the Instruction to Sub-contractor had stated that no money was payable unless a Work Order was issued by the defendant and the defendant in fact had not issued any Work Order, the plaintiff pleaded in §§ 5 and 6 of the draft reply as follows:

“5. Pursuant to the oral agreement made between Mr. Chung Tak Leung of the Plaintiff and Mr. Leung Kam Fai of the Defendant on or about 12^th September 2003 (‘Oral Agreement’), it was expressly and/or otherwise impliedly agreed that in consideration of the Plaintiff carrying out the works as stipulated under the Instructions to Subcontractor, the Defendant shall issue Work Orders upon the Plaintiff’s submission of payment applications. In fact, the Defendant undertakes to issue the Work Orders when the instructed works had been completed by the Plaintiff.

6. Wrongfully and in breach of the Oral Agreement, the Defendant has failed and/or refused to issue any Work Order or pay any part or at all of the balance of HK$4,372,180.80 despite repeated requests and demands.”

27.  The effect of these two paragraphs is to vary the terms of the Instruction to Sub-contractor so that the instruction would take effect without the need for confirmation by the Work Order and the Work Order ceased to be the pre-requisite for commencement of work. 

28.  Mr Chung Tak Leung of the plaintiff also said in §§ 4, 5 and 8 of his affirmation filed on 28 September 2012 in support of the application as follows:

“4. By a series of negotiation between I and Mr. Leung Kam Fai as the representatives of the Plaintiff and Defendant respectively, the Plaintiff subsequently entered into an agreement with the Defendant (‘the Agreement’), both oral and in writing as evidenced by the Defendant’s Instructions to Sub-contractor Ref. EMSCD/KFL/J62F210066 to the Plaintiff on 12^th September 2003 … of which the Plaintiff agreed to supply labour and materials to carry out the instructed P & D Installation Work (‘the Work’) for the Defendant … in consideration of the Defendant’s payment in such sum payable under the Agreement.

5. I was induced by Mr. Leung on behalf of the Defendant that so long as the Plaintiff carrying out the Work under the Agreement, the Defendant shall issue the Work Orders, as stated in the Defendant’s Instructions to Subcontractor, upon the Plaintiff’s submission of payment applications. In fact, all along the Defendant undertook to issue the Work Orders when the instructed works had been completed by the Plaintiff from time to time.

…

8. In the said period between 9^th October 2003 and 9^th December 2004, I approached Mr. Leung of the Defendant on numerous occasions to demand for the Outstanding Sum.  Mr. Leung repeatedly came up with the excuse by alleging that the failure to issue the Work Orders was due to the Defendant’s internal arrangement of which its officer(s) at the senior management level interrupted in between and refused to sign the same for expediting payment to the Plaintiff from the account office. …”

29.  The effect of the Work Order as stipulated in the Instruction to Sub-contractor was entirely changed by the plaintiff’s alleged oral agreement.  As a result of the alleged oral variation, the Work Order, instead of having to be issued before commencement of works, should be issued at the completion of works and submission of payment application. Payment on the application is supposed to follow the issuance of the Work Order.

30.  The effect of the oral agreement is to vary the defendant’s liability to pay as stated in the Instruction to Sub-contractor.  By the oral agreement, the plaintiff is not relying on the Instruction to Sub-contractor as pleaded in the statement of claim, but a different instruction to sub-contractor with the stipulation on the issuance of the Work Order varied by the oral agreement and the defendant’s liability to pay also varied accordingly.

31.  The draft reply further pleaded that the Work Order was only for the defendant’s internal use in recording payment arranged to payees including the plaintiff.  The plaintiff further relied on the Control of Exception Clauses Ordinance, Cap 71 in answer to the exclusion clause in the Instruction to Sub-contractor that provided that no money was payable unless a Work Order had been issued by the defendant.

32.  The plaintiff then pleaded alternative claims under the Supply of Services (Implied Terms) Ordinance, Cap 457 and quantum meruit in §§8.3 and 8.4 as follows:

“8.3 there was an implied term of payment under the Instructions to the Subcontractor of which the Defendant shall have an obligation to pay a reasonable charge plus reasonable profit to the Plaintiff. The Plaintiff will rely on the Supply of Services (Implied Terms) Ordinance (Cap. 457) to its full terms and effect; and

8.4 Further or alternatively, if, which is expressly denied, the Plaintiff was unable to receive payment under the Defendant’s Instructions to Subcontractor or there is no contract formed at all between the parties, the Plaintiff was entitled to a reasonable sum plus reasonable profit on its works on quantum meruit basis.

PARTICULARS ON QUANTUM MERUIT

Particulars have been set out in Annexure hereof.

(There are set out in the annexure particulars of workers’ wages and sundry expenses/materials.)”

The defendant’s grounds of opposition to the filing of the reply

33.  The defendant mainly objected to the pleading of the oral agreement and the alternative claims for payment by way of an implied term under the Supply of Services (Implied Terms) Ordinance and for quantum meruit. It submitted that, subject to the question of the limitation period which expired in December 2010, these claims should be pleaded by way of amendments to the statement of claim and not in the reply.

34.  Furthermore, regarding the oral agreement allegedly made between Mr Chung Tak Leung of the plaintiff and Mr Leung Kam Fai of the defendant, the defendant said that Mr Leung and the defendant had fallen out sometime between 2008 and 31 May 2010 when Mr Leung’s company Winice Corporation Limited sued the defendant’s wholly owned subsidiary T J Engineering Service Ltd in HCCT 30/2010.

35.  Mr Niehorster submitted that if this oral agreement should have been pleaded in February or March 2007 in the statement of claim when the defendant was ready to exchange witness statements, the defendant could have approached and taken a statement from Mr Leung.  But the defendant was no longer in a position to do so because the defendant and Mr Leung had fallen out.

36.  Just on this point, the plaintiff has indicated that it will be calling Mr Leung to testify for it.  If I should allow this agreement to be pleaded in the reply and if the defendant should consider it necessary to see what Mr Leung has to say about it, the defendant may approach Mr Leung at any time.  Mr Leung will also be available for cross-examination by the defendant. I do not think the fact that the defendant had fallen out with Mr Leung should be a bar for the oral agreement to be pleaded.

37.  Regarding whether the oral agreement should be pleaded in the reply, Mr Chan submitted that the plaintiff only intended to rely on the oral agreement as a response to the defendant’s point that a Work Order was necessary.  It would not to be relied on as the basis of a claim.  The plaintiff’s case has always been that the defendant is liable to pay the plaintiff for the work done irrespective of whether the defendant has issued a Work Order.

38.  I, however, think that this is an oversimplification of the difference in nature between the plaintiff’s claim based on the Instruction to Sub-contractor as pleaded in the statement of claim and its claim based on the Instruction to Sub-contractor as varied by the alleged oral agreement.  With the alleged oral variation, the Instruction to Sub-contractor was effective without the need for confirmation by a Work Order.  The stipulation on Work Order in the instruction as quoted above was deleted and rewritten by the oral agreement.  After the deletion and rewriting of this stipulation, the Instruction to Sub-contractor was a different one with a different contractual effect.  If the plaintiff would like to rely on the instruction as varied by the oral agreement either as the claim to replace the original claim or as an alternative to the original claim, the variation should be pleaded in the statement of claim.

39.  Having considered the submissions from both sides on the oral agreement and the two alternative claims under the Supply of Services (Implied Terms) Ordinance and quantum meruit, I take the view that these are the bases of claims and should be pleaded in the statement of claim.  Mr Chan, in fact, did not raise much argument against the proposition that the two alternative claims should be pleaded in the statement of claim.  His main argument was on the oral agreement, but I disagree with him.

40.  If the Instruction to Sub-contractor as varied by the oral agreement and the two alternative claims should be pleaded in the statement of claim, the defendant would be able to plead to them as of right in the defence. If these claims should be allowed to go in the reply, the defendant would have to apply for leave to file a rejoinder to deal with them.  That is not right.

41.  I therefore give leave to the plaintiff to file the reply within 14 days from today but without §§ 5, 6, 8.3 and 8.4, the particulars under §8.4 and the annexure thereto.

Case Management Summons

42.  Mr Chan for the plaintiff, in contemplation of making the alternative claims under the Supply of Services (Implied Terms) Ordinance and quantum meruit in the reply, has proposed comprehensive directions for expert evidence.  Now that I have refused leave for these claims to be made in the reply, I would not give any direction on expert evidence.  I would also adjourn the Case Management Summons to 24th August 2015 at 9:30a.m. for the parties can consider how to proceed further.

Costs

43.  I have advised the parties that save for the Case Management Summons, I would order costs to follow the event.  Since the defendant has lost the summons to strike out, I would make a costs order nisi that the defendant do pay the plaintiff the costs of this summons to be taxed and paid forthwith.

44.  Regarding the costs of the two summonses issued by the plaintiff for filing of the reply, they provided for costs to the defendant. The plaintiff has also lost the arguments on the oral agreement and the two alternative claims.  I therefore make a costs order nisi that the plaintiff do pay the defendant the costs of these two summonses to be taxed and paid forthwith.

45.  On apportionment, I consider that 60% of the time for the hearing was used for the striking out summons and 40% for the filing of the reply.

46.  Since the Case Management Summons has been adjourned, no costs order need be made on it.