BRILLIANT (MAN SAU) ENGINEERING LTD v. BRILLIANT STEEL ENGINEERING LTD AND ANOTHER

DCCJ 5938/2019

[2021] HKDC 252

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5938 OF 2019

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DECISION

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Introduction

1.  This is an appeal of Brilliant (Man Sau) Engineering Limited (“the Company”) from an order of a master dated 1 September 2020 (“the Order”) whereby the default judgment dated 16 March 2020 (“the Default Judgment”) in its favour as against Hok Wa Construction Engineering Company Limited (“Hok Wa”) was set aside upon its application by summons dated 13 May 2020 (“the Summons”).

2.  Mr Poon, counsel for Hok Wa, accepts that the Default Judgment is a regular judgment. It follows that for the setting aside of the Default Judgment to be justified, Hok Wa should be able to show a reasonable defence with a real prospect of success to the claim of the Company. 

3.  On the other hand, the Company further took out a summons dated 3 February 2021 (“the Variation Summons”) to vary the Default Judgment in the event that the same is allowed to be reinstated.

4.  I shall first deal with the appeal in respect of the Summons and should treat this appeal as a de novo hearing of the Summons.

The Summons

Plaintiff’s claim

5.  The case of the Company can be summarised as follows. All the parties are locally incorporated and carry their respective businesses in the construction industry in Hong Kong. The present action concerns a construction project undertaken in Park-In Commercial Centre, 56 Dundas Street Mongkok, Kowloon (“the Project”).

6.  By a written agreement dated 10 April 2018 (“the Sub-Contract”), the Company sub-contracted part of the construction works in the Project to Brilliant Steel Engineering Limited (“Brilliant”). Brilliant in turn sub-sub-contracted part of the sub-contract works to Hok Wa.

7.  In the course of completing the sub-contract works, both Brilliant and Hok Wa experienced financial difficulties and could not pay the wages of their workers.

8.  The Company provided financial assistance to Brilliant and Hok Wa in two forms. First, it advanced three loans to them in the total amount of HK$1,271,150.00 (“the Loan”) pursuant to 3 written loan agreements (“the Loan Agreements”). 

9.  Second, the Company paid a total sum of HK$912,450.00 (“the Amount”) to the workers of Hok Wa (“the Unpaid Workers”) to settle their claims made to the Labour Tribunal under LR23-0018-0005 and LR23-2018-1340 pursuant to section 43C of the Employment Ordinance (“the Ordinance”).

10.  Section 43C provides that if any wages become due to an employee who is employed by a sub-contractor on any work which the sub-contractor has contracted to perform, such wages shall be payable to the employee by the principal contractor and where the sub-contractor has sub-contracted with a superior sub-contractor, by the principal contractor.

11.  Section 43F provides that if a principal contractor or superior sub-contractor paid to an employee any wages under section 43C, the wages so paid shall be a debt due by the employer of that employee to the principal contractor or superior sub-contractor, as the case maybe.

12.  Section 43D(1) provides that an unpaid employee of a sub-contractor shall serve a written notice on the principal contractor within prescribed period after the date on which his wages become due.

13.  The Company was served notices of the said claims of the Unpaid Workers pursuant to sections 43D(1) and 43H(1) of the Ordinance.

14.  In the present context, the Company was the principal contractor. Brilliant was the superior sub-contractor and Hok Wa was the employer of the Unpaid Workers.

15.  Hok Wa made a repayment of HK$50,000 on 12 October 2018 and another one of HK$100,000 on 16 October 2018 in regard to the Loan. The balance in the sum of HK$1,121,150.00 (“the Outstanding Sum”) remains outstanding despite repeated demands. The Outstanding Sum is the subject matter of one of the two claims in this action, which I would refer to as the Loan Claim hereinafter. And the Outstanding Sum, together with interest thereon, is the subject matter of paragraph 1 of the Default Judgment.

16.  The other claim concerns the Amount, which the Company is prima facie entitled to recover from Hok Wa pursuant to the Ordinance. I should refer it as the EO Claim below. Despite the specific claim of the Amount in the Statement of Claim, in the Default Judgment, only damages to be assessed is allowed. This has prompted the Company to take out the Variation Summons. 

17.  To resist the application for setting aside the Default Judgment, Madam Lee who is the accountant of the Company has filed two affirmations to which the relevant documents are exhibited.

18.  The Loan Claim is evidenced by the following documents:

(1)  The 3 Loan Agreements respectively dated 5 October 2018, 12 October 2018 and 15 October 2018 printed in the Chinese language;

(2)  The 3 cheques in the total amount of the Loan issued in favour of Brilliant;

(3)  The 2 Customer Advices respectively dated 12 October 2018 and 16 October 2018 evidencing two repayments in the total sum of HK$150,000 to the Company (“the Repayments”);

(4)  The demand letter dated 11 September 2019 issued by Messrs Fung, Wong, Ng & Lam on behalf of the Company to Hok Wa pressing for repayment of the Outstanding Sum (“the Demand Letter”).

19.  Madam Lee witnessed the execution of the Loan Agreements and she signed on each of them as witness. She witnessed the signing of the Loan Agreements by Mr Wong on behalf of Hok Wa. The identity card numbers of Mr Wong were written beside his signature in each of the Loan Agreements.

20.  According to the company search records of Hok Wa, Mr Wong was one of the directors, appointed on 28 May 2018. His identity card numbers stated therein correspond with those appearing in the Loan Agreements beside his signatures.

21.  There is no authenticity issue taken about the foregoing supporting documents. In my view, the Loan Claim is amply made out on the documentary evidence.

22.  Ms Lin who is the company secretary of Hok Wa made three affirmations in support of the Summons. She is the daughter of Mr Lin who is now the sole director of Hok Wa.

23.  Ms Lin pointed out that Mr Wong resigned as director of Hok Wa on 15 June 2018 and Hok Wa had no contact with him after August 2018. She alleges that Hok Wa had no knowledge of the Loan Agreements but she did not say anything about the Repayments in her first affirmation.

24.  In her second affirmation, Ms Lin pointed out that in one of the Customer Advices, there was a note which stated that the amount was received on 28 September 2018, which was well before the dates of the Loan Agreements. She said that this cast doubt on who made the deposit and under what circumstances it was made.  

25.  The allegations or criticisms of Ms Lin, skillfully expanded by Mr Poon, cannot, in any way, dampen the overall effect of the cogent documentary evidence in support of the Loan Claim.

26.  I cannot see any merit in the allegation that Mr Wong executed the Loan Agreements without the authority and consent of Hok Wa. In the first place, I see no reason why Mr Lin did not make an affirmation to set out all the allegations including the missing of Mr Wong himself. Mr Lin was the director of Hok Wa at the material time and he, and not Ms Lin, should be in pole position to explain the alleged resignation less than three weeks from the appointment and why it was not until 4 months later that it saw necessary to file his cessation to act as director by Form ND 2A with the Companies Registry on 22 October 2018, shortly after the creation of the Loan Agreements.

27.  The Loan Agreements clearly served the financial interests of Hok Wa. It was expressly stipulated in them that the Loan was related to the outstanding wages of the worker in the Project.

28.  Mr Wong was heavily involved in the Project acting on behalf of Hok Wa. Ms Lin accepted that Hok Wa took part in the Projects through the introduction of Mr Wong. Further, Mr Wong’s name was included in the payment schedule for August 2018 which was submitted by Hok Wa to Brilliant in early September 2018. He worked at the site of the Projects for 29 days in August.

29.  Given his involvement in the Project, there is no reason why Hok Wa did not find it necessary to inform the Company of the alleged resignation of Mr Wong in mid-June 2018 when the Project was still in progress. There is no explanation as to why Mr Wong came up with the idea of resignation in the middle of the Project after being appointed for less than three weeks, and thereafter he continued to work on behalf of Hok Wa for the Project. The inexplicably late filing of Form ND 2A done shortly after the execution of the Loan Agreements cries out for an explanation.

30.  Moreover, Hok Wa would not have made the Repayments in October 2018 if it had not entered into the Loan Agreements. Instead of making a clear and unequivocal denial of the Repayments, Ms Lin merely points at a printed note on the side of the Customer Advice and says it cast doubt on the identity of the transferor.

31.  The printed note is irrelevant in that it cannot cast doubt on the actual transfer evidenced by the Customer Advice. The printed note forms no part of the Customer Advice. The information contained in the Customer Advise cannot be altered by any extraneous record including the printed note. It is unfortunate that there is no evidence as to who prepared the printed note and why the actual date of receipt was stated to be 28 September 2018. Nevertheless, I accept that the transfer of HK$50,000 being part of the Repayments was actually completed on the date shown in the Customer Advice. There is simply no contrary evidence.

32.  If Hok Wa had not known the existence of the Loan Agreements, it should have been alarmed when it received the Demand Letter enclosing a copy of the Loan Agreements. It should have taken the earliest opportunity to put on record that Mr Wong had resigned as a director of Hok Wa and he executed the Loan Agreements without the authority of Hok Wa.  However, Hok Wa did not respond to the Demand Letter at all. Its non-response is very much revealing as to the truth, or lack of it, in its allegation.

33.  In the premises, I am not satisfied that there is credible evidence to support the alleged resignation of Mr Wong and I believe he had actual authority to execute the Loan Agreements on behalf of Hok Wa.

34.  In any event, I accept the submissions of Mr Law, counsel for the Company, that in the circumstances described above, Mr Wong did have the apparent authority to execute the Loan Agreements on behalf of Hok Wa.

35.  For completeness, I should make it clear that I am not persuaded by the submission of Mr Poon that the inconsistencies in the evidence of the Company suggest that the Loan Agreements were a sham and there is a possible case of fraud calculated to injure Hok Wa against the Company.

36.  Mr Poon submits that the purported purpose of the Loan is contradicted by fact that the Loan Agreements were made only after the settlement of the claims of the Unpaid Workers in the Labour Tribunal. This also contradicts the evidence of Madam Lee that despite the advancement of the Loan, the wages of the Unpaid Workers remained outstanding and led to their complaints in the Labour Tribunal.

37.  Mr Law accepts that there were inconsistencies between Madam Lee’s version of events and the contemporaneous documents. Such inconsistencies do not make me doubt the indisputable existence of the Loan Agreements and hence the liability to pay the Outstanding Sum.  Nor do they amount to a reasonable defence with a realistic chance of success to the claim of the Company.

38.  The settlement of the wages of the 46 Unpaid Workers as a result of their claims in the Labour Tribunal could not possibly suggest that there were no other outstanding wages to be paid by Hok Wa. Hok Wa had far more than 46 workers at the material time. There is no evidence that Hok Wa was financially sound to pay all its workers in its own right. Hok Wa has not asserted so. The Loan appeared to serve an obvious purpose and must be of assistance to Hok Wa. More importantly, Hok Wa did make the Repayments. The minor inaccuracies in the Loan Agreements concerning the outstanding wages are not really a matter of moment.

39.  Mr Poon is right in pointing out that the second sum purportedly advanced on 12 October 2018 in the sum of HK$660,250 exceeded the agreed loan amount stipulated in the 2^nd Loan Agreement (HK$166,400).

40.  I accept the explanation given by Madam Lee in her affirmation. The sum advanced actually consisted of the loaned amount in the 2^nd Loan Agreement and an interim payment of HK$493,850. Mr Law helpfully referred this court to an interim payment certificate IP-06 and the supporting documents. These documents showed that the interim payment was actually due and settled by the cheque issued for the purpose of the 2^nd Loan Agreement bearing the number of 182256 together with the Loan advanced thereunder.  This explains why the actual sum advanced by the said cheque, which included the interim payment, was much larger than the stipulated amount in the 2^nd Loan Agreement.

41.  Now I turn to the EO Claim. First of all, I cannot accept the submission of Mr Poon that the Default Judgment does not include the EO claim. It is clear to me that the relief in the form of assessment of damages was granted for the EO claim. Mr Poon is unable to attribute this relief to any other cause of action in the Statement of Claim.

42.  The payment of the Amount made to the Unpaid Workers is well-documented. A full set of receipts (“the Receipts”) signed by all the Unpaid Workers has been produced and no issue of authenticity is raised.

43.  The purported defence as summarised by Mr Poon is that Hok Wa was not the employer of these workers at all material times and Hok Wa was only an agent of Brilliant to source workers for the purpose of the Project and was not a sub-sub-contractor of the Company.

44.  These contentions are not substantiated by cogent evidence and actually contradicted by contemporaneous documents including the Receipts. I see no reason why the Unpaid Workers accepted that they were the employees of Hok Wa if this was contrary to facts.

45.  Lastly, Mr Poon does not make any submission on the alternative case that Hok Wa is entitled to a set off against the outstanding amount owed by Brilliant to Hok Wa. Mr Poon is right in refraining from doing so. There is no substance in this alternative case. There can be no set-off against a debt not payable by the Company.

46.  In the premises, I can conclude that Hok Wa has no defence to the EO Claim.

47.  There being no defence to both the Loan Claim and the EO Claim, there is no reason to set aside the Default Judgment. The Summons should have been dismissed in my judgment.

The Variation Summons

48.  As stated above, under section 43F of the Ordinance, the payment of the Amount to the Unpaid Workers by the Company is a debt and the Company shall be entitled to recover the same as a debt from Hok Wa.

49.  Very wisely, Mr Poon does not object to the Variation Summons.

50.  I agree that the Default Judgment should be varied in that paragraph 2 of the same should be changed to the following term:

“the sum of HK$912,450.00, together with interest thereon at the rate of (i) 8.125% per annum from 31 October 2019 to 31 December 2019 and (ii) 8.084% per annum from 1 January 2022 to the date hereof and thereafter at judgment rate until payment, leaving the assessment as to how much the 1^st defendant may recover from the 2^nd defendant (or vice versa) to be determined.”

Conclusion and order

51.  For the reasons given above, I allow the appeal of the Company and set aside the Order. In the result, the Default Judgment should be restored with the foregoing variation made pursuant to the Variation Summons.

52.  Costs should follow the event. I make an order nisi that Hok Wa should pay the Company its costs of and occasioned by the appeal and the Summons with certificate for counsel, to be taxed if not agreed. The Company does not ask for costs in respect of the Variation Summons. I then make no order as to costs.

53.  It remains for me to thank both Mr Law and Mr Poon for their helpful submissions.