WING MOU CONSTRUCTION CO. LTD v. COSMIC INSURANCE CORPORATION LTD & ANOTHER

HCCT40/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 40 OF 2001

(formerly HCA 10552 of 2000)

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R E A S O N S F O R D E C I S I O N

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The action

1. In the present action, the plaintiff, a company in liquidation, claims against the defendant under a Bond dated January 1997 ("the Bond") entered into jointly and severally by the defendant and one Shing Lee Engineering Company Limited ("Shing Lee"). The Bond was issued to guarantee the performance by Shing Lee of its obligations under its sub-contract with the plaintiff.

2. The plaintiff was the main contractor for the construction of two primary schools and one secondary school at Tseung Kwan O under a contract with the Hong Kong Housing Authority.

3. In its Statement of Claim, the plaintiff alleges that the relevant sub-contract was one entered into on or about 14 January 1997 between its agent, Enfield Construction Company Limited and Shing Lee ("the alleged Sub-Contract"). The claim under the Bond for $5 million (the maximum amount guaranteed thereunder) arises from an alleged breach by Shing Lee as a result of which the plaintiff terminated the alleged Sub-Contract and suffered loss and damage.

4. In its Amended Defence, the defendant raises essentially the following defences :

(1) The alleged Sub-Contract was not the one referred to in the Bond and was therefore not covered by it. It therefore followed that even if Shing Lee was in breach, this was irrelevant as far as the Bond was concerned.

(2) Even if it was the relevant Sub-Contract mentioned in the Bond, Shing Lee was not in breach as alleged by the plaintiff or at all, and even if it was, this was not causative of the plaintiff's alleged loss and damage.

(3) In any event, the loss and damage alleged by the plaintiff are denied and further, the plaintiff has failed to mitigate its loss.

5. The plaintiff has served a Reply to the Amended Defence dated 9 April 2002 putting in issue many of the allegations raised in the Amended Defence.

6. By a Third Party Notice dated 12 February 2001, the defendant claimed an indemnity against the third party under the terms of a Counter Indemnity also made in or about January 1997 ("the Counter Indemnity"). The Counter Indemnity, made in consideration of the issue by the defendant of the Bond, was intended to enable the defendant to be indemnified by the third party in the event of any loss it may incur under the Bond. Although there are as yet no pleadings in the third party proceedings, it is clear from the third party's Skeleton Submission that there are issues in dispute between the defendant and the third party in relation to the ambit of the Counter Indemnity.

7. The present action was instituted on 19 December 2000. The events relevant to this action took place in late 1997. On 9 February 2002, I gave a number of directions leading up to the trial of the action between the plaintiff and the defendant. One of the directions was that the action was to be set down for trial forthwith but not listed for hearing before 2 September 2002. Thus, while it cannot be said that trial is imminent, for no dates have as yet been fixed, it is clear that the action as between the plaintiff and the defendant is at a relatively advanced stage.

8. By contrast, however, as far as the third party proceedings are concerned, nothing seems to have happened since the issue of the Third Party Notice (which, it will be recalled, was issued in February 2001) until the present summons taken out by the third party.

The present summons and its determination on 6 June 2002/6/8

9. By a summons dated 18 March 2002, the third party applied under RHC, Order 15, rule 6(2)(b) for an order to be joined as an additional defendant in the action together with consequential directions. The third party applied to amend the summons (by a summons dated 23 May 2002) by seeking the following alternative relief under Order 16, rule 4 :

"... the Third Party be at liberty to appear at the trial of the action and oppose the Plaintiff's claim so far as it is affected thereby, and for that purpose to put in pleadings and evidence, to cross-examine witnesses and to make such applications as in the capacity of a defendant."

10. At the hearing, I gave leave to amend the summons as aforesaid and, after hearing argument from Miss Elizabeth Yang (who appeared for the third party) and Mr Thomas Lee (for the plaintiff), and to both of whom I am grateful for their cogent and succinct submissions, I made the following order, namely that :

(1) The question of liability between the defendant and the third party be tried after the trial of the action between the plaintiff and the defendant.

(2) The third party be at liberty to appear at the trial of the action and oppose the plaintiff's claim so far as it may be affected thereby and for this purpose, to cross-examine witnesses and do all acts as the court may permit (and, I might add, to be bound by the result of the trial of the action).

(3) There be liberty to apply.

I also made orders as to the costs of the summons.

11. I now give the reasons for this decision.

The issues before the court

12. The protagonists in the summons before me were the plaintiff and the third party. The defendant adopted a neutral stance.

13. There was no dispute over the direction sought that the question of the third party's liability to the defendant be tried after the trial of the main action. Rather, the issues that divided the plaintiff and the third party can be summarised as follows :

(1) Can a third party to proceedings apply to be joined as a defendant under Order 15, rule 6(2)(b), or is he restricted to seeking third party directions under Order 16, rule 4? (Issue One)

(2) Whatever the applicable rule, should the third party be permitted in the present case to participate in the main action and, if so, to what extent? (Issue Two)

Issue One : the correlation between Order 15, rule 6(2)(b) and Order 16, rule 4

14. The respective positions of the plaintiff and the third party became quite extreme during the hearing : while the plaintiff submitted that where a person is already a third party in the action, he should not be permitted to apply to be joined under Order 15, rule 6(2)(b) as a defendant but instead be restricted only to seeking directions under Order 16, rule 4, the third party's primary contention was that it should be joined as a defendant under Order 15, rule 6(2)(b) with the seeking of directions under Order 16, rule 4 only as an alternative.

15. In my judgment, it is unnecessary, at least in the present case, to try to resolve what theoretical differences there may be between the two sub-rules in circumstances where the relevant party seeking relief is already a third party in the action. However, I make following observations which are pertinent to the present summons :

(1) The object of both Order 15, rule 6(2)(b) and Order 16, rule 4(4) is to ensure that all relevant matters in dispute in the action can be effectively adjudicated upon by the court and that all relevant parties are before it. There is no material difference between the two provisions. Under Order 15, rule 6(2)(b), the court can "on such terms as it thinks just" permit a person to be joined as a defendant thereby allowing that person to participate (to whatever extent permitted by the court) in the action. Under Order 16, rule 4 (4), the court allows a person who is already a third party to participate in the main action between the plaintiff and defendant, again "on terms as may be just" or "as may be just". In this latter regard, a third party may even be permitted to defend the action against the plaintiff either alone or jointly with any defendant. The concern that somehow an application under Order 16, rule 4(4) might be more restrictive than one under Order 15, rule 6(2)(b) is not well-founded. In my view, although I do not have to decide this issue, the court's power is the same and where a person is already a third party in the action, any application to participate in the main action should be made under Order 16, rule 4(4) and not under Order 15, rule 6(2)(b).

(2) All persons who have a legitimate legal or financial interest in the outcome of the matter in dispute are relevant parties. Thus, where the proprietary or pecuniary rights of a person are affected, this is enough. For example, the Motor Insurers' Bureau is sufficiently interested in an action between an injured person and the driver of the relevant motor vehicle where it is at risk ultimately of having to pay in respect of a judgment against the driver (see Gurtner v. Circuit [1968] 2 QB 587; Chu Yuen-wah v. Lee Kwok-kee [1995] 2 HKLR 280) or a surety for the liabilities of another person is also sufficiently interested (see In re Idenden [1970] 1 WLR 1015). A person may be a relevant party even though the plaintiff has no cause of action against him : see TSB Private Bank International v. Chabra [1992] 1 WLR 231, at 237C, 238C-H.

(3) Where a person is already a third party in the action, in most if not all cases, that person will by definition already have a legitimate interest in the outcome of the main action between the plaintiff and the existing defendant.

(4) However, it should be borne in mind that the existence of a legitimate interest in the outcome of proceedings is only the minimum requirement that has to be shown before a court can be required to make an order under either Order 15, rule 6(2)(b) or Order 16, rule 4(4). This I believe to be the effect of these two sub-rules. Both are couched in permissive terms. It is a fallacy to suppose that once a legitimate interest is demonstrated, then it follows that an order under one of these provisions will be made. The court still retains a residual discretion to decide whether or not the order sought should be made.

(5) The exercise of the court's discretion in any given case depends on a number of factors. Of course, the court must first identify exactly the ambit of the order sought before considering what are the relevant factors going towards the exercise of discretion. No exhaustive list of factors can be enumerated but I would suggest the following will regularly feature : the individual prejudice to the parties in the event an order is or is not made, the stage that the action has reached when the application is made, any delay in making the application and any delay that may be caused should an order be made. What weight the court will give to any particular factor will depend on the precise form of the order or orders sought.

(6) Ultimately, the discretion is exercised bearing in mind the object of the two sub-rules I have earlier set out and, as with any exercise of discretion by the court, orders should only be made where necessary, just and convenient.

Issue Two : The present case

16. In the present case, as I have said, Miss Yang's primary position was for an order under Order 15, rule 6(2)(b)(i) for the third party to be joined as an additional defendant. I have already observed above that where a third party wishes to take part in the main action, the proper mode of application is under Order 16, rule 4(4), which gives the court wide powers to make any orders meeting the justice of any given situation.

17. I fully accept that the third party has a legitimate interest in the outcome of the main action : it is clear that any liability under the Counter Indemnity can only arise if in the main action, the defendant is held to be liable to the plaintiff under the Bond. Mr Lee does not contend otherwise.

18. From Miss Yang's thorough Skeleton Submission, the precise orders that the third party wished the court to make were as follows, namely, that it be at liberty to :

"(a) Appear at the trial of the action and oppose the Plaintiff's claim so far as it affected thereby, and be bound by the result;

(b) Deliver a defence;

(c) File evidence (which will involve the exchange of list of documents and (factual and expert) witness statements);

(d) Cross-examine witnesses at trial;

(e) Make such applications as in the capacity of a defendant; and

...."

19. Though Mr Lee complains of the lateness of the third party's application (since the Third Party Notice was issued as long ago as February 2001 and directions leading up to trial have already be made in the main action, as I have already set out above), he nevertheless accepted that the third party should in the circumstances be permitted, in what he referred to as a "classic" formulation, to appear at the trial of the action and oppose the plaintiff's claim so far as it may be affected thereby and for this purpose to cross-examine witnesses and do all acts as the court may permit.

20. Where he parted company with the third party was, however, in the further orders sought by the third party, in particular those relating to the service of a defence, the exchange of lists of documents and witness statements (both factual and expert).

21. I accept Mr Lee's submissions, for the following reasons :

(1) As I have said, it has to be accepted that the third party has a legitimate interest in the outcome of the proceedings between the plaintiff and the defendant. Further, the continual theme of the third party's affidavit evidence and Miss Yang's submissions, is that while it cannot be said that the defendant is not doing what is necessary to defend the action effectively, the defendant's interests are different to the third party's. Reference was made to the defendant not pursuing certain lines of defence in its Amended Defence and of the defendant's failure, even now, to apply for security for costs against the plaintiff (it being in liquidation).

(2) That said, however, a balance has nevertheless to be struck between the third party's interests and wishes, and the fact that the plaintiff should not have to be vexed, against its will, by having to face more than one opponent at trial, thus adding to the time and expense of the action (cf. Barton v. London and Northwest Railway Company (1888) 38 Ch. D. 144).

(3) I therefore think it right (and as accepted by Mr Lee) that the third party should be permitted to appear at the trial of the action and oppose the plaintiff's claim. Given the different commercial interests of the defendant and the third party, the third party should be given the opportunity to attend the trial to ensure that its interests are protected.

(4) However, as to the further orders sought by the third party, I decline at this stage to make them in the absence of any concrete material. For example, no draft defence was made available and no indication was given of what documents or evidence (expert or otherwise) the third party wanted to use at trial. As and when more concrete material is made available, the court will only then consider whether in the circumstances then prevailing, the third party should be entitled to the orders it seeks.

(5) Miss Yang submitted that the interests of justice dictated that the third party should be treated as a defendant in the action. This may or may not be so, but without concrete material before the court, I am unable to accede to any of the orders sought by her client. If and when eventually the third party makes its applications for the type of orders sought, the court will have to consider the overall justice of the situation, particularly the stage that the action will then have reached.

(6) I would finally add in this context that even if the third party was already a defendant in the action, I still would not have made the orders sought without more concrete material being provided to the court.