WING LEE ENGINEERING & TECHNICAL SERVICES LTD v. ALLIANCE BUILDING SERVICES ENGINEERING LTD

bjbj 8l)R R gP z gP il 2007 __________

R E A S O N S F O R J U D G M E N T __________ Hon Tang VP (giving the reasons for judgment of the Court): The defendant was the plaintiff s sub-contractor in relation to certain work in the student hostel of the Hong Kong Polytechnic University ( the Work ) between 2000 and 2001. One Mr Chu Yau Chai ( ) was in turn the defendant s sub-contractor. The plaintiff itself was the sub-contractor of Sinotech Engineering Limited ( Sinotech ). In respect of the sub-contract, the plaintiff had paid the defendant the sum of $171,000 in about May 2001 for work performed up to 30 April 2001. The plaintiff also gave two cheques to the defendant totalling $135,954 in respect of work performed up to 30 May 2001 ( the 2 cheques ). Payment in respect of these cheques were later countermanded by the plaintiff in about early July 2001. On 18 July 2001, Chu and his workers staged a sit-in inside the worksite because they had not been paid by the defendant. The Work came to a complete halt as a result. On the same evening, there was a meeting in a restaurant, attended by PW1 (Mr Wong Kong-fan), DW1 (Mr Choi Kin-man Kent), Chu and one Mr Tang of Sinotech. The plaintiff s case as pleaded in para. 9(c) of his re-re-amended statement of claim ( statement of claim ) was that the following agreement ( the agreement ) was reached at that meeting: (i) the Plaintiff shall pay the

Defendant a sum of HK$350,000 to redeem the 2 stopped cheques and to settle the outstanding wages of the manual workers employed by Mr. Chu Yau Chai; (ii) out of the sum of HK$350,000 a sum of HK$135,954 was deemed to be used to settle the sums due and payable under the 2 stopped cheques; (iii) the Defendant shall return the 2 stopped cheques to the Plaintiff; and (iv) the Defendant s employment be terminated immediately but the Plaintiff would reserve its right to claim against the Defendant for loss and damage. In the re-amended defence and counterclaim of the defendant ( defence and counterclaim ), the defendant denied the agreement. The plaintiff s case was that the defendant agreed that the plaintiff should pay $350,000 directly to Chu to settle the outstanding wages, presumably owed by Chu to his workers. The $350,000 was duly paid. At trial, it was the plaintiff s case that it was entitled to recover the payment made to the defendant less the amount of the 2 cheques pursuant to the agreement reached on 18 July 2001. Alternatively, the plaintiff claimed that it was entitled to recover that amount pursuant to section 43F of the Employment Ordinance, Cap. 57 ( the Ordinance ). The plaintiff, however, was willing to give the defendant credit for the sum of $135,954 (see para. 13(b) of the statement of claim). In para. 3(d)(i) of the defence, the defendant pleaded that there

was a total outstanding sum of $579,591.31 not paid by the Plaintiff . Further, in para. 6(ii) of the defence: (ii) Further or in the alternative if the Plaintiff is entitled for contributions from the Defendant pursuance to s. 43F of the Employment Ordinance, the Defendant is entitled to the credit balance (if any) after the Plaintiff s set off from the amount due or become due for the works that the Defendant had performed for the Plaintiff. The amount due or become due is particularized as below: Amount Sources Total $579,591.31 Unpaid invoices (see para. 3(d)(i) hereof) ______ HK$579,591.31 ============= The defendant counterclaimed the sum of $135,954 being the amount of the 2 cheques. The defendant also counterclaimed, further and alternatively for $229,591, but it seemed only if the plaintiff was entitled to contribution from the defendant pursuant to section 43F of the Ordinance (see para. 14(ii) of the defence). However, in para. 17 of the judgment, the judge regarded the defence as having raised the following issue: (4) Is the Defendant entitled to claim against the Plaintiff for any other sum of money under its subcontract with the Plaintiff? (a) What was the contract price for execution of the Work? (b) What was the agreement in respect of the sample flat? (c) What was the actual value of the work done by the Defendant? The judge, after a four-day trial,

gave judgment in favour of the plaintiff in the sum of $214,046 and dismissed the counterclaim. In respect of the counterclaim, the defendant cross-appealed in respect of the amount represented by the 2 cheques only. The judge found in para. 57 of the judgment that: 57. After all, it has been the Plaintiff s case that the $350,000 was an advanced payment to the Defendant and that the Defendant would be asked to reimburse in due course. That was in fact PW1 s evidence. See transcript page 64C. It was on that basis that the judge found in favour of the plaintiff. The defendant s case was that the $350,000 was paid by Sinotech and not the plaintiff. The judge was of the view that the evidence adduced by the plaintiff to prove payment by the plaintiff of the $350,000 to Chu was just overwhelming . See para.

19. In para. 35 of the judgment the judge summarised DW1 s evidence: 35. DW1 further states in evidence that it had been agreed by all parties present in the meeting that after Sinotech had paid the agreed sum to Chu, the parties would have no claims against one another except that the Plaintiff would still be liable to the Defendant for the unpaid cheques in the total sum of $135,954. The judge resolved the conflict in the evidence between PW1 and DW1 by the view of this court on the credibility of witnesses and the reliability of their evidence . See para.

37. After a careful analysis of the evidence which covered 26 paragraphs, the judge concluded: 66. Having considered the evidence, I have no hesitation to find the evidence given by DW1 to be inherently improbable, unreasonable and not creditable. I reject his evidence concerning the agreement reached during the dinner meeting. I have observed the demeanour of PW1. He strikes me as a witness of truth. I find his evidence convincing and credible. I prefer his evidence to that of DW1. I find, on a balance of probabilities, that his evidence on what had happened during the dinner meeting had correctly reflected the truth. Mr Simon Lam, who appeared for the defendant before us but not at the trial, submitted that that was not the plaintiff s pleaded case. He submitted that even if there was the agreement as alleged by the plaintiff, the sum of $350,000 paid could not have been the loss or damage in respect of which the plaintiff had reserved the right to claim. He submitted such loss or damage should be confined to loss or damage arising out of the breach of the agreement. This submission had not been made at trial. It is in the nature of a defence of confession and avoidance. Order 18 rule 8 requires such defence to be pleaded specifically, because it is a matter which, if not specifically pleaded, might take the opposite party by surprise . Mr Lam, however, submitted that we

should examine the statement of claim as if we were concerned with an application to strike out the statement of claim. He also submitted that if the defendant had made such an application below, it would have succeeded. But that is not how we should look at the pleadings on appeal. In order to understand the issues between the parties, one has to consider the pleadings as a whole. The defence was simple. The defendant denied the agreement, and in any event, it pleaded that it was entitled to set off the amount unpaid. We speak in general terms, because the defence has not been well pleaded and it is not clear why the set-off seemed to have been confined to the claim based on section 43F. Mr Damian Wong for the plaintiff reminded us that at trial no point was taken that the plaintiff s claim for the return of the $350,000 was not covered by its pleaded case. Had any pleading point been taken, and they should have taken as early as possible, the plaintiff could have applied for leave to amend. The plaintiff s case was that the agreement was reached orally at a restaurant. We do not agree that we should construe the agreement as if it was contained in a formal document. We believe the agreement as pleaded covered a claim for the repayment of any overpayment. By overpayment we mean the difference between the $350,000 and money (if any) payable by the plaintiff to the defendant

under the sub-contract in addition to the amount of the 2 cheques. But in any event, even if it is correct that the case found by the judge had been unpleaded that is not fatal to the plaintiff s claim. Because it is obvious that the defendant had had the full opportunity to deal with it. See: Poon Hau Kei v Hsin Chong Construction Co Ltd and Others [2003] 2 HKLRD 56, per Ma JA (as he then was) para. 41, which was approved by the Court of Final Appeal in [2004] 7 HKCFAR 148, para.

12. Mr Lam s second point is that since the plaintiff s case is that it was entitled to be repaid $350,000 subject to deduction for unpaid work, and since on the evidence, in June and July 2001, further work had been done (which was the subject of the counterclaim), the plaintiff s case must fail because the plaintiff had failed to prove how much such work was worth and hence how much ought to have been deducted. Mr Lam submitted we should ignore the defence and counterclaim but should concentrate on the statement of claim. But that is not how litigation should be conducted. In any event, the plaintiff s pleaded case was that the only money to be deducted was the amount represented by the 2 cheques. At trial, one of the issues before the judge was whether the defendant was entitled to be paid for work done in June and July. The judge concluded that the defendant was not. There was no appeal. On such facts, we cannot agree with Mr Lam s submission that the plaintiff s claim must also fail because the plaintiff had failed to prove that it was not liable to pay for work performed in June and July. We cannot agree that somehow the plaintiff had a residual burden to prove that it was not liable to pay for other works, or that it had failed to discharge it. We turn to the claim based on section 43F of the Ordinance. This can be disposed of briefly. We did not believe section 43F was

engaged. Section 43F is engaged if a principal contractor or superior sub-contractor pays to an employee any wages under section 43C. However, section 43D(3) provides: (3) A principal contractor and superior sub-contractor (if any) shall not be liable to pay any wages under section 43C to the employee of a sub-contractor if that employee fails to serve a notice on the principal contractor under subsection (1). The judge referred to section 43D in para. 44 of his judgment but did not pause to consider its implication. There was no evidence that such notice had been served on the principal contractor who was Gammon Construction (Hong Kong) Limited ( Gammon ). Furthermore, it is not clear from the evidence that $350,000 had all been paid to the employees of Chu. At para. 42 of the judgment, the judge said: 42. Under these circumstances, it is in my view more probable than not that there was in fact an agreement or an arrangement between the Defendant and Chu on how they would compel the Plaintiff to make immediate payment, and how to share the money when the Plaintiff so paid, though the precise arrangement was a matter known only to Chu and DW1. However, the probability is that the $350,000 had been paid to Chu s employees, and none of it was kept by Chu or shared by the defendant, but even so section 43F still would not apply because there was no notice under section 43D. For the above reasons, we dismissed the appeal with costs in favour of the plaintiff. (Robert Tang) Vice-President (Maria Yuen) Justice of Appeal (Louis Tong) Judge of the Court of First Instance Mr. Damian Wong, instructed by Messrs. Benny Kong & Peter Tang, for the Plaintiff. Mr. Simon K.C. Lam and Mr. Raymond Fong, instructed by Messrs. Fung, Wong, Ng & Lam, for the Defendant.

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