XCHRX SHUN CHEONG ELECTRICAL ENGINEERING CO. LTD. v. WAI SHUN CONSTRUCTION CO. LTD.

HCA1001/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1001 OF 2000

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J U D G M E N T

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1. This is an appeal by the defendant against a master's decision granting summary judgment to the plaintiff in the sum of $663,041.10.

2. The plaintiff was the defendant's sub-contractor carrying out electrical works on a government contract. The main contractor was Gammon Construction Ltd. The defendant was a sub-contractor to Gammon.

3. The plaintiff commenced its work in 1992 and most of the contract was completed within three years. The sum claimed is the balance of payments due to the plaintiff for work done. There is no dispute between the parties that the payment vouchers, upon which the plaintiff claims, represent work actually done and approved by the Architectural Services Department ("ASD") of the Government. There is no dispute as to the quantum value of the work.

4. The Defence submission is simply that they have an arguable defence that the oral contract between the parties contained a "pay when paid" term. Thus their liability to pay the plaintiff only arose once they had been paid by Gammon. The defendant further submits that Gammon have not yet paid for the work done under the vouchers claimed for.

5. The plaintiff's case is that the contractual term as to payment was that it was due within a specified number of days after the ASD had certified the work. They deny any "pay when paid" term.

6. If the defendant satisfies the court that it has an arguable defence which is more than a bare assertion of a defence, it should be granted leave to defend. It must be a credible defence which is more than being "practically moonshine".

7. An obvious difficulty arises in this case from the fact that there is nothing in writing which stipulates the terms of payment between the parties. The plaintiff relies, inter alia, on an oral agreement which is not particularized in the Statement of Claim. All payments actually made, up to the payments due in these proceedings, were made reasonably and promptly and did not give rise to any dispute. In support of its contention that there was no "pay when paid" agreement, the plaintiff points to its demand letters, all of which state, in effect, "please pay within 30 days now that the work has been certified by the ASD". They also point to the fact that all payments were made relatively promptly. The Defence, on the other hand, point out that all payments made by them, throughout the contract, were in fact, only made after they had been paid by Gammon. The "pay when paid" method had been the course of dealing between the parties throughout and a dispute has only arisen because, for the first time, the defendant had, it alleges, not been paid by Gammon and therefore not yet liable to the plaintiff.

8. In addition to the payment history, the defendant relies on part of the judgment of Chung J in case 851/1999 between the same parties. The issue in that case was different. The issue before Chung J was whether the plaintiff was the defendant's sub-contractor or Gammon's sub-contractor. In finding for the plaintiff on that issue, that the plaintiff was the defendant's sub-contractor, (and therefore that the defendant was liable to pay the plaintiff $3.1 million) the learned judge had cause to consider the contemporaneous correspondence between the parties and he noted that there was evidence that the defendant always paid the plaintiff only after it had been paid by Gammon.

9. As a fall back position, the plaintiff submits that even if the payment was on a "pay when paid" basis, the defendant has in fact been paid by Gammon and should therefore pay. They point to a letter from Gammon to the defendant dated 5 January 2000 in which Gammon states that all sums claimed by the plaintiff have been paid by them to the defendant. Unfortunately, this is not accepted by the Defence. They point to the correspondence and payment schedules which show that the last payment received by the defendant from Gammon was in June 1998 and yet 10 of the 12 payment vouchers upon which the plaintiff's claim is based post-date that final payment. Mr Lin, for the plaintiff, submitted the counter argument on the documents that the defendant had been paid in full. However, it cannot be safely determined one way or the other, on the available evidence. Thus, as it is impossible to conclude with any certainty whether the defendant has been paid by Gammon for the work done by the plaintiff, the court must return to the first issue in this appeal, namely has the Defence shown it has an arguable case that the payment term in this contract was on a "pay when paid" basis.

10. Whilst I have natural sympathy for the plaintiff, who has completed the work which has been approved by the ASD and is simply waiting to be paid, I am not able to come to the conclusion that the defendant's contentions are incredible bare assertions which do not merit a hearing.

11. The defendant in 851/1999 argued it was not liable to pay the plaintiff $3.1 million because the plaintiff was not its sub-contractor. It lost. Now, it argues it is not liable to pay because it has not been paid by Gammon. It has two hurdles to surmount, firstly, to demonstrate that "pay when paid" was a term of the contract and, secondly, that it has not yet been paid. It is not for this court to evaluate the strength of its case, only to decide whether it has one which is at least a triable issue.

12. With some reservation, I have come to a different view from that of the learned master on that issue. I have had the advantage of considering a further affirmation from Tan Wai Hing on behalf of the defence, which was not before the learned master, before coming to this decision. The affirmation, which I admitted in the face of opposition from the plaintiff, exhibits a detailed schedule of payments throughout the whole contract. The schedule provides evidence of, but not necessarily proof of, a "pay when paid" course of dealing.

13. I allow this appeal and give the defendant unconditional leave to defend. The existence of the additional affirmation has contributed to my decision also, that the proper order as to costs in this case is that they be in the cause, both here and below. I accordingly make an order nisi to that effect.