CACV167/2006 GREATWORTH INDUSTRIAL LTD v. SUN FOOK KONG CONSTRUCTION LTD AND ANOTHER - LawHero
CACV167/2006
上訴法庭（民事）Rogers VP, Le Pichon JA and Barma J6/12/2006
CACV167/2006
由此
A A
CACV 167/2006
B B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF APPEAL D
CIVIL APPEAL NO. 167 OF 2006
E E
(ON APPEAL FROM HCCT NO. 45 OF 2003)
F F
G BETWEEN G
GREATWORTH INDUSTRIAL LIMITED Plaintiff
H and H
I SUN FOOK KONG CONSTRUCTION LIMITED 1st Defendant I
PROSPERITY CONSTRUCTION AND 2nd Defendant
J J
DECORATION LIMITED (formerly known as
OLS INTERNATIONAL LIMITED)
K K
L
Before: Hon Rogers VP, Le Pichon JA and Barma J in Court L
Date of Hearing: 30 November 2006
M M
Date of Handing Down Judgment: 7 December 2006
N N
JUDGMENT
O O
Hon Rogers VP:
P P
Q 1. This was an appeal from a judgment of Reyes J given on 4 April Q
2006. The matter before the judge was a claim in respect of a sum said to be
R R
due from the first defendant amounting to $1,918,662.80. By the time the
S matter came to trial the parties had agreed that if there were any liability on the S
part of the first defendant to the plaintiff the sum would be $1,640,000. The
T T
claim was put on the basis that the second defendant had been the first
U defendant’s agent in entering a contract with the plaintiff and that the first U
V V
由此
A
- 2 - A
defendant had been the undisclosed principal. It was also put on the basis that
B B
the first defendant had been unjustly enriched by the plaintiff’s work and there
C was also a claim made under the heading of quantum meruit. There were other C
bases for the claim but these have not been pursued in this court. The judge
D D
dismissed the plaintiff’s claim. At the conclusion of the hearing of this appeal
E judgment was reserved which we now give. E
F F
Background
G G
2. The first defendant entered what has been termed the Main
H H
Contract with the Housing Authority dated 21 September 1995 in respect of the
I
construction of housing at Hing Tung Estate Phase 4. There were provisions I
in the Main Contract which prohibited the first defendant assigning any interest
J J
under that agreement and from sub-letting the works in their entirety. Whether
K
as a means of circumventing those restrictions or not, there was on K
14 September 1995 what has been termed a letter of acceptance from the first
L L
defendant to the second defendant accepting the second defendant’s
M appointment as the first defendant’s Manager to carry out the works at Hing M
Tung Estate Phase 4. The manager was to be paid $289,650,000 which, as the
N N
judge observed, was almost the whole of the amount that the first defendant
O would be paid under the Main Contract less some 4.3% of the amounts of Bills O
Nos. 3 to 16 of the Bills of Quantities.
P P
3. There was then a Management Agreement dated 2 July 1996
Q Q
between the first and second defendants. Under the second recital of that
R R
agreement it was stated that the first defendant had engaged and desired to
S
continue to engage the second defendant as the Manager to assist in carrying out, S
completing and maintaining the contract works under the Main Contract. One
T T
of the important issues in this case is whether this Management Agreement
U
dated 2 July 1996 constituted the second defendant a sub-contractor of the first U
V V
由此
A
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defendant or constituted the second defendant the first defendant’s agent in
B B
carrying out the Main Contract works.
C C
4. There was then a further document dated 1 October 1996 headed
D D
Confirmation of Order addressed by the second defendant to the plaintiff by
E which the plaintiff was employed to do certain Temporary Works and other E
matters for a sum of $378,800 and to do Steel and Metal Works in accordance
F F
with Bill No. 3 to Bill No. 14 for the sum of $3,377,905, $3,550,000 after
G discount. G
H H
5. The work under the contract with the second defendant progressed
I
slowly. There is no dispute between the parties that there were complaints I
from the Housing Authority about the delay in the works. This naturally
J J
caused difficulties and, because it appeared that the second defendant was in
K
financial difficulties, an arrangement was arrived at whereby the first and K
second defendants and Petway Ltd, a wholly owned subsidiary of the same
L L
parent company as the second defendant, entered a Deed of Novation which
M released the second defendant from its obligations to the first defendant under M
the Management Agreement. This was subject to the second defendant’s
N N
parent company providing a guarantee to the first defendant.
O O
6. This arrangement, in itself, did not prove to be wholly satisfactory
P and Petway Ltd was unable to complete the works. The first defendant then P
entered into a supplemental agreement with Petway Ltd. Under that the first
Q Q
defendant undertook to assist Petway Ltd in the works and assumed the role of
R R
Construction Manager to be responsible for administering payments from
S
Petway Limited to some contractors working on the project. Nevertheless, S
Petway Ltd was responsible for ensuring that there were adequate funds to pay
T T
the sub-contractors.
U U
V V
由此
A
- 4 - A
The claim that the first defendant was the undisclosed principal
B B
C 7. Since the second defendant was in liquidation and made no C
appearance at the trial the whole emphasis of the plaintiff’s case was against the
D D
first defendant. The first basis upon which the plaintiff’s case was put was that
E although it was, of course, aware that the main contractor with the Housing E
Authority was the first defendant it was not until the Management Agreement
F F
dated 2 July 1996 was considered that the plaintiff appreciated that the first
G defendant was the undisclosed principal of the second defendant. The basis of G
that claim, therefore, is not that the second defendant had any ostensible
H H
authority but it is simply based on a construction of the Management Agreement
I itself. I
J J
8. The judge considered the Management Agreement and indeed all
K
of the provisions relied upon by Mr Scott SC, who appeared for the plaintiff in K
this court but not below, and came to the conclusion that although other
L L
provisions of the Management Agreement did not expressly exclude the
M possibility of the second defendant being the first defendant’s agent, when the M
contract was construed as a whole it was clear that, on a contractual basis, the
N N
second defendant was not in a position to contract on behalf of the first
O defendant as an agent. He said at paragraphs 11, 12 and 13 of his judgment: O
P “ 11. In my view, Management Agreement cl.12 makes it plain that, P
despite its appointment as Manager, OLS needed special permission
from Sun Fook before OLS could sub-contract with third parties as
Q Sun Fook’s agent. It was only with Sun Fook’s express authority in Q
writing that OLS could enter into sub-contracts with third parties on
Sun Fook’s behalf.
R R
12. Clause 12 provided:-
S S
“(1) The Manager shall not assign the whole or part of any
part of this Agreement or the benefits, obligations or liabilities
T hereunder provided that the Manager may sub-contract any T
portion of any piece of the Contract Works either on a labour
and material basis or labour only basis and provided however
U U
that:-
V V
由此
A
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(a) the Manager shall obtain the prior written consent
B of SFK if any sub-contract shall be made in the name of B
SFK or otherwise;
C C
(b) in the event that the Manager enters into any
sub-contract, whether in the name of SFK or otherwise,
D the sub-contract shall contain provisions whereby in the D
event of this Agreement being terminated for any reason
whatsoever,
E E
(i) SFK may elect to be substituted for the
Manager as the main contractor to the
F F
sub-contract; and; and
G (ii) if SFK so elects, the sub-contractor shall G
not have any claims against SFK in respect of
any obligations or liabilities of the Manager to
H the sub-contractor under the sub-contract H
subsisting as at the day on which SFK elects to
I be substituted for the Manager; and I
(c) any sub-contract that does not contain provisions
J described in Paragraph (b) above shall not be valid. J
(2) References in this Agreement (other than in Clause 12(1)
K to sub-contractors of the Manager shall be references to K
sub-contractors engaged in the execution of the Contract Works
L irrespective of whether the sub-contractors are engaged in the L
name of SFK, the Manager or otherwise.”
M 13. There is no evidence that OLS sought Sun Fook's permission to M
enter into the Sub-Contract with Greatworth. It follows from cl. 12
that OLS had no authority to create direct contractual relations between
N Sun Fook and Greatworth.” N
O 9. In my view the judge was correct in his conclusion. Although it O
was argued in this court, as in the court below, that clause 12 did not limit the
P P
scope of authority of the second defendant but simply enabled the first
Q defendant to recover damages in the event of breach, that argument, in my view, Q
is not correct. As already pointed out, the plaintiff is not relying on ostensible
R R
authority but simply on the basis of authority given to the second defendant
S S
under the terms of the management agreement. It is those terms, therefore,
T
which must establish the agency. That they do not. T
U U
V V
由此
A
- 6 - A
10. In this court, Mr Scott sought to raise an additional argument based
B B
on the case of Watteau v Fenwick [1893] 1 QB 346 that an undisclosed principal
C may be sued on a contract made on his behalf by his agent acting within the C
authority usually confided to an agent of that character notwithstanding the
D D
limitations put on that authority as between the principal and agent. Whatever
E the status of the decision in that case, and it has been doubted in, for example, E
Bowstead and Reynolds on Agency: see 18th addition para. 8-079, in
F F
circumstances where agency has not been established, this argument is clearly
G irrelevant. G
H H
Quantum meruit
I I
11. As argued this point amounted to a claim for unjust enrichment.
J J
The basis upon which it was put was that the first defendant had obtained the
K
benefit of the plaintiff having carried out the various works and yet the plaintiff K
had not been paid therefor. The first and most immediate answer to that
L L
provided by Mr Clayton SC, who appeared on behalf of the first defendant in
M this court but not below, was that the first defendant had paid and had incurred M
the full liabilities to pay the second defendant, and later Petway Limited, for the
N N
work which was carried out.
O O
12. Whilst that, in itself, was not disputed by the plaintiff it was said
P that the first defendant had not pleaded the payment. Nevertheless, it was P
established to the satisfaction of the court below and, in view of the nature of
Q Q
the plaintiff’s pleadings, I do not consider that it was open to the plaintiff to take
R R
a pleading point particularly at this stage.
S S
13. Reliance was placed not only on the fact that the first defendant
T had become the Contract Manager but, furthermore, that it had sent payments to T
the plaintiff with a receipt clause in the following terms:
U U
V V
由此
A
- 7 - A
“We draw your attention that the above payment and, if any further
B payment(s) you received from [the first defendant] made on behalf of B
[second defendant] in respect of your work/materials supplied for the
above mentioned work site, shall not, unless otherwise specified,
C C
constitute or be deemed to constitute or be construed as having
constituted any contractual relationship between [the first defendant]
D and your company, nor be construed as [the first defendant] acting as D
agent for [the second defendant].”
E E
Underneath that, there was a typed acknowledgment of receipt in the following
F terms:- F
G “We acknowledge receipt of the above payment. G
We further confirm our understanding and acceptance to the
H above-mentioned agreement.” H
I 14. It was said that the plaintiff had been placed in a position where it I
continued to carry out work under the illusion that payment would come from
J J
the second defendant whereas in fact it was coming from Petway Ltd.
K K
15. In my view, Mr Clayton was correct in his submission that the
L L
matter was one of contractual relations between the second defendant and the
M plaintiff. As the judge observed, the plaintiff still remained the sub-contractor M
of the second defendant. Unfortunate though it is, in cases of chain
N N
sub-contracts one of the sub-contractors may become insolvent and those in the
O chain below that sub-contractor may, as a result, not receive full payment. As, O
Mr Clayton pointed out, the case was not put on the basis of misrepresentation
P P
or any similar footing. If it had been, the evidence called on behalf of the first
Q defendant might have been very different. In the circumstances he submitted Q
that the first defendant was entitled to proceed upon the basis that the second
R R
defendant and Petway Limited had their contractual relations with the
S sub-contractors in order. S
T T
16. For these reasons I would dismiss this appeal and make an order
U nisi of costs in favour of the first defendant. U
V V
由此
A
- 8 - A
Hon Le Pichon JA:
B B
C 17. I agree. C
D Hon Barma J: D
E E
18. I agree.
F F
G G
H H
I (Anthony Rogers) (Doreen Le Pichon) (Aarif Barma) I
Vice-President Justice of Appeal Judge of the
J Court of First Instance J
K K
Mr John Scott SC & Mr Calvin Cheuk, instructed by Messrs Ho & Ip, for the
Plaintiff/Appellant
L L
Mr Peter Clayton SC & Mr David Tsang, instructed by Messrs Li & Partners,
M for the 1st Defendant/Respondent M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
GREATWORTH INDUSTRIAL LTD v. SUN FOOK KONG CONSTRUCTION LTD AND ANOTHER
由此
A A
CACV 167/2006
B B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF APPEAL D
CIVIL APPEAL NO. 167 OF 2006
E E
(ON APPEAL FROM HCCT NO. 45 OF 2003)
F F
G BETWEEN G
GREATWORTH INDUSTRIAL LIMITED Plaintiff
H and H
I SUN FOOK KONG CONSTRUCTION LIMITED 1st Defendant I
PROSPERITY CONSTRUCTION AND 2nd Defendant
J J
DECORATION LIMITED (formerly known as
OLS INTERNATIONAL LIMITED)
K K
L
Before: Hon Rogers VP, Le Pichon JA and Barma J in Court L
Date of Hearing: 30 November 2006
M M
Date of Handing Down Judgment: 7 December 2006
N N
JUDGMENT
O O
Hon Rogers VP:
P P
Q 1. This was an appeal from a judgment of Reyes J given on 4 April Q
2006. The matter before the judge was a claim in respect of a sum said to be
R R
due from the first defendant amounting to $1,918,662.80. By the time the
S matter came to trial the parties had agreed that if there were any liability on the S
part of the first defendant to the plaintiff the sum would be $1,640,000. The
T T
claim was put on the basis that the second defendant had been the first
U defendant’s agent in entering a contract with the plaintiff and that the first U
V V
由此
A
- 2 - A
defendant had been the undisclosed principal. It was also put on the basis that
B B
the first defendant had been unjustly enriched by the plaintiff’s work and there
C was also a claim made under the heading of quantum meruit. There were other C
bases for the claim but these have not been pursued in this court. The judge
D D
dismissed the plaintiff’s claim. At the conclusion of the hearing of this appeal
E judgment was reserved which we now give. E
F F
Background
G G
2. The first defendant entered what has been termed the Main
H H
Contract with the Housing Authority dated 21 September 1995 in respect of the
I
construction of housing at Hing Tung Estate Phase 4. There were provisions I
in the Main Contract which prohibited the first defendant assigning any interest
J J
under that agreement and from sub-letting the works in their entirety. Whether
K
as a means of circumventing those restrictions or not, there was on K
14 September 1995 what has been termed a letter of acceptance from the first
L L
defendant to the second defendant accepting the second defendant’s
M appointment as the first defendant’s Manager to carry out the works at Hing M
Tung Estate Phase 4. The manager was to be paid $289,650,000 which, as the
N N
judge observed, was almost the whole of the amount that the first defendant
O would be paid under the Main Contract less some 4.3% of the amounts of Bills O
Nos. 3 to 16 of the Bills of Quantities.
P P
3. There was then a Management Agreement dated 2 July 1996
Q Q
between the first and second defendants. Under the second recital of that
R R
agreement it was stated that the first defendant had engaged and desired to
S
continue to engage the second defendant as the Manager to assist in carrying out, S
completing and maintaining the contract works under the Main Contract. One
T T
of the important issues in this case is whether this Management Agreement
U
dated 2 July 1996 constituted the second defendant a sub-contractor of the first U
V V
由此
A
- 3 - A
defendant or constituted the second defendant the first defendant’s agent in
B B
carrying out the Main Contract works.
C C
4. There was then a further document dated 1 October 1996 headed
D D
Confirmation of Order addressed by the second defendant to the plaintiff by
E which the plaintiff was employed to do certain Temporary Works and other E
matters for a sum of $378,800 and to do Steel and Metal Works in accordance
F F
with Bill No. 3 to Bill No. 14 for the sum of $3,377,905, $3,550,000 after
G discount. G
H H
5. The work under the contract with the second defendant progressed
I
slowly. There is no dispute between the parties that there were complaints I
from the Housing Authority about the delay in the works. This naturally
J J
caused difficulties and, because it appeared that the second defendant was in
K
financial difficulties, an arrangement was arrived at whereby the first and K
second defendants and Petway Ltd, a wholly owned subsidiary of the same
L L
parent company as the second defendant, entered a Deed of Novation which
M released the second defendant from its obligations to the first defendant under M
the Management Agreement. This was subject to the second defendant’s
N N
parent company providing a guarantee to the first defendant.
O O
6. This arrangement, in itself, did not prove to be wholly satisfactory
P and Petway Ltd was unable to complete the works. The first defendant then P
entered into a supplemental agreement with Petway Ltd. Under that the first
Q Q
defendant undertook to assist Petway Ltd in the works and assumed the role of
R R
Construction Manager to be responsible for administering payments from
S
Petway Limited to some contractors working on the project. Nevertheless, S
Petway Ltd was responsible for ensuring that there were adequate funds to pay
T T
the sub-contractors.
U U
V V
由此
A
- 4 - A
The claim that the first defendant was the undisclosed principal
B B
C 7. Since the second defendant was in liquidation and made no C
appearance at the trial the whole emphasis of the plaintiff’s case was against the
D D
first defendant. The first basis upon which the plaintiff’s case was put was that
E although it was, of course, aware that the main contractor with the Housing E
Authority was the first defendant it was not until the Management Agreement
F F
dated 2 July 1996 was considered that the plaintiff appreciated that the first
G defendant was the undisclosed principal of the second defendant. The basis of G
that claim, therefore, is not that the second defendant had any ostensible
H H
authority but it is simply based on a construction of the Management Agreement
I itself. I
J J
8. The judge considered the Management Agreement and indeed all
K
of the provisions relied upon by Mr Scott SC, who appeared for the plaintiff in K
this court but not below, and came to the conclusion that although other
L L
provisions of the Management Agreement did not expressly exclude the
M possibility of the second defendant being the first defendant’s agent, when the M
contract was construed as a whole it was clear that, on a contractual basis, the
N N
second defendant was not in a position to contract on behalf of the first
O defendant as an agent. He said at paragraphs 11, 12 and 13 of his judgment: O
P “ 11. In my view, Management Agreement cl.12 makes it plain that, P
despite its appointment as Manager, OLS needed special permission
from Sun Fook before OLS could sub-contract with third parties as
Q Sun Fook’s agent. It was only with Sun Fook’s express authority in Q
writing that OLS could enter into sub-contracts with third parties on
Sun Fook’s behalf.
R R
12. Clause 12 provided:-
S S
“(1) The Manager shall not assign the whole or part of any
part of this Agreement or the benefits, obligations or liabilities
T hereunder provided that the Manager may sub-contract any T
portion of any piece of the Contract Works either on a labour
and material basis or labour only basis and provided however
U U
that:-
V V
由此
A
- 5 - A
(a) the Manager shall obtain the prior written consent
B of SFK if any sub-contract shall be made in the name of B
SFK or otherwise;
C C
(b) in the event that the Manager enters into any
sub-contract, whether in the name of SFK or otherwise,
D the sub-contract shall contain provisions whereby in the D
event of this Agreement being terminated for any reason
whatsoever,
E E
(i) SFK may elect to be substituted for the
Manager as the main contractor to the
F F
sub-contract; and; and
G (ii) if SFK so elects, the sub-contractor shall G
not have any claims against SFK in respect of
any obligations or liabilities of the Manager to
H the sub-contractor under the sub-contract H
subsisting as at the day on which SFK elects to
I be substituted for the Manager; and I
(c) any sub-contract that does not contain provisions
J described in Paragraph (b) above shall not be valid. J
(2) References in this Agreement (other than in Clause 12(1)
K to sub-contractors of the Manager shall be references to K
sub-contractors engaged in the execution of the Contract Works
L irrespective of whether the sub-contractors are engaged in the L
name of SFK, the Manager or otherwise.”
M 13. There is no evidence that OLS sought Sun Fook's permission to M
enter into the Sub-Contract with Greatworth. It follows from cl. 12
that OLS had no authority to create direct contractual relations between
N Sun Fook and Greatworth.” N
O 9. In my view the judge was correct in his conclusion. Although it O
was argued in this court, as in the court below, that clause 12 did not limit the
P P
scope of authority of the second defendant but simply enabled the first
Q defendant to recover damages in the event of breach, that argument, in my view, Q
is not correct. As already pointed out, the plaintiff is not relying on ostensible
R R
authority but simply on the basis of authority given to the second defendant
S S
under the terms of the management agreement. It is those terms, therefore,
T
which must establish the agency. That they do not. T
U U
V V
由此
A
- 6 - A
10. In this court, Mr Scott sought to raise an additional argument based
B B
on the case of Watteau v Fenwick [1893] 1 QB 346 that an undisclosed principal
C may be sued on a contract made on his behalf by his agent acting within the C
authority usually confided to an agent of that character notwithstanding the
D D
limitations put on that authority as between the principal and agent. Whatever
E the status of the decision in that case, and it has been doubted in, for example, E
Bowstead and Reynolds on Agency: see 18th addition para. 8-079, in
F F
circumstances where agency has not been established, this argument is clearly
G irrelevant. G
H H
Quantum meruit
I I
11. As argued this point amounted to a claim for unjust enrichment.
J J
The basis upon which it was put was that the first defendant had obtained the
K
benefit of the plaintiff having carried out the various works and yet the plaintiff K
had not been paid therefor. The first and most immediate answer to that
L L
provided by Mr Clayton SC, who appeared on behalf of the first defendant in
M this court but not below, was that the first defendant had paid and had incurred M
the full liabilities to pay the second defendant, and later Petway Limited, for the
N N
work which was carried out.
O O
12. Whilst that, in itself, was not disputed by the plaintiff it was said
P that the first defendant had not pleaded the payment. Nevertheless, it was P
established to the satisfaction of the court below and, in view of the nature of
Q Q
the plaintiff’s pleadings, I do not consider that it was open to the plaintiff to take
R R
a pleading point particularly at this stage.
S S
13. Reliance was placed not only on the fact that the first defendant
T had become the Contract Manager but, furthermore, that it had sent payments to T
the plaintiff with a receipt clause in the following terms:
U U
V V
由此
A
- 7 - A
“We draw your attention that the above payment and, if any further
B payment(s) you received from [the first defendant] made on behalf of B
[second defendant] in respect of your work/materials supplied for the
above mentioned work site, shall not, unless otherwise specified,
C C
constitute or be deemed to constitute or be construed as having
constituted any contractual relationship between [the first defendant]
D and your company, nor be construed as [the first defendant] acting as D
agent for [the second defendant].”
E E
Underneath that, there was a typed acknowledgment of receipt in the following
F terms:- F
G “We acknowledge receipt of the above payment. G
We further confirm our understanding and acceptance to the
H above-mentioned agreement.” H
I 14. It was said that the plaintiff had been placed in a position where it I
continued to carry out work under the illusion that payment would come from
J J
the second defendant whereas in fact it was coming from Petway Ltd.
K K
15. In my view, Mr Clayton was correct in his submission that the
L L
matter was one of contractual relations between the second defendant and the
M plaintiff. As the judge observed, the plaintiff still remained the sub-contractor M
of the second defendant. Unfortunate though it is, in cases of chain
N N
sub-contracts one of the sub-contractors may become insolvent and those in the
O chain below that sub-contractor may, as a result, not receive full payment. As, O
Mr Clayton pointed out, the case was not put on the basis of misrepresentation
P P
or any similar footing. If it had been, the evidence called on behalf of the first
Q defendant might have been very different. In the circumstances he submitted Q
that the first defendant was entitled to proceed upon the basis that the second
R R
defendant and Petway Limited had their contractual relations with the
S sub-contractors in order. S
T T
16. For these reasons I would dismiss this appeal and make an order
U nisi of costs in favour of the first defendant. U
V V
由此
A
- 8 - A
Hon Le Pichon JA:
B B
C 17. I agree. C
D Hon Barma J: D
E E
18. I agree.
F F
G G
H H
I (Anthony Rogers) (Doreen Le Pichon) (Aarif Barma) I
Vice-President Justice of Appeal Judge of the
J Court of First Instance J
K K
Mr John Scott SC & Mr Calvin Cheuk, instructed by Messrs Ho & Ip, for the
Plaintiff/Appellant
L L
Mr Peter Clayton SC & Mr David Tsang, instructed by Messrs Li & Partners,
M for the 1st Defendant/Respondent M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V