MORISON, SON & JONES (HONG KONG) LTD. v. YIU WING CONSTRUCTION CO. LTD.

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J U D G M E N T

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Clough, J.A. (delivering the judgment of the court):

1. This is an appeal by the defendant in this action from the order of Mayo J. made on the 9th June 1998 allowing the plaintiff's appeal against the order of Master O'Donnell striking out the plaintiff's summons for summary judgment under Order 14 and, in the alternative, for interim payment under Order 29 rule 10. The judge gave summary judgment for the plaintiff against the defendant in the sum of $1,278, 120.06 with interest and directed payment out of the principal amount of the judgment sum which had previously been paid into court by the defendant.

2. In addition to the usual issues which arise in Order 14 proceedings, this appeal also raises, not for the first time in Hong Kong, the question of the consequences of a plaintiff invoking Order 14 after the defendant has filed a defence and counterclaim. Indeed the plaintiff waited until after summons for directions and discovery before issuing its summons for summary judgment.

3. The Plaintiff is a roof light contractor. Its claim arises out of a contract ("the supply contract") dated the 9th April 1984 made between the plaintiff and the defendant, a construction company which was at the time engaged as main contractor in a building project under a contract ("the main contract") dated the 18th July 1983 made with the Hong Kong Housing Authority in the Authority's standard form. There was no privity of contract between the plaintiff and the Authority.

4. Under the supply contract the plaintiff contracted to supply the necessary materials for and erect a Coxdome wide span skylight according to specification for a price of $1,495,000. The contract provided for a delivery schedule and for phased payments for the work but in the event these provisions ceased to apply because on the 2nd July 1984 the Authority's Architect required the skylight work under the main contract to be carried out in accordance with a specified drawing and the work under the supply contract was varied to comply with the Architect's requirements.

5. The plaintiff completed the work in accordance with the requirements of the Architect on the 15th January 1986. By then it had invoiced the defendant for the original contract price of $1,495,000 together with a further sum of $583, 120.06 in respect of additional work and materials required to comply with the Architect's requirements. The total sum invoiced was thus $2,078,120.06. The defendant had already made interim payments amounting to $800,000, leaving a balance of $1,278,120.06 which the plaintiff required to be paid by its letter to the defendant dated the 17th January 1986.

6. The balance claimed not having been paid by the defendant, on the 8th November 1986 the plaintiff issued a writ indorsed with a statement of claim for the sum of $1,278,120.06 as being due from the defendant under the varied supply contract. The action has had an active interlocutory life but the following are the events relevant to these proceedings.

7. On the 3rd December 1986 the defendant acknowledged service of the writ and gave notice of intention to defend. On the 23rd December 1986, on the defendant's application to extend time for filling its defence, a master made an "unless" order extending time for the defendant's defence for 14 days but directing that in default the defendant was to be debarred from further defending the action and the plaintiff was to be at liberty to enter final judgment. The defendant failed to comply with the "unless" order and on the 12th January 1987 the plaintiff entered judgment in default for $1,278,120.06, interest and costs.

8. On the 14th January 1987 the defendant issued a summons applying inter alia to set aside the default judgment. This summons was supported by the affirmation of Mr. Raymond Lee, an assistant solicitor who had the conduct of the proceedings on behalf of the defendant. He affirmed in substance that the defendant's failure to file its defence and counterclaim in compliance with the master's "unless" order was due to a misunderstanding resulting from negotiations between solicitors after the "unless" order regarding the possible settlement of the dispute. Mr. Lee affirmed that the defence and counterclaim had been ready for filing but had been held back because he understood that the plaintiff's solicitors had agreed to a stay of proceedings pending their consideration of the defendant's without prejudice proposals.

9. In opposing the defendant's application the plaintiff relied on an affidavit sworn by Mr. Whitehead, an assistant solicitor, who had the conduct of the proceedings on behalf of the plaintiff. His evidence contradicted that of Mr. Lee and asserted that the question of a stay of the proceedings had never been raised. He contended that the court should not exercise its discretion in favour of the defendant, alternatively if it were minded to do so it would only be appropriate to do so conditional upon payment into court of the judgment sum.

10. Master Perrior heard the defendant's application on the 18th February 1987. He made an order setting aside the default judgment conditional upon the defendant paying into court the whole of the judgment sum. He also extended the time for filing a defence and counterclaim and inter alia gave directions for the filing of a reply and defence to counterclaim. The defendant complied with the condition for payment in. It filed its defence and counterclaim on the 23rd February 1987. For reasons that are not material to this appeal the plaintiff did not file its reply and defence to counterclaim until the 12th June 1987.

11. On the 10th July 1987 the plaintiff filed its list of documents and issued a summons for directions applying for orders that the defendant serve its list of documents within 14 days, with inspection to be within 7 days after service, and that the action, estimated to take 3 days for trial, be set down within 21 days in the running list. On the 28th July 1987 the master made an order in terms of the summons regarding discovery, but the matter of directions concerning the trial was adjourned sine die with liberty to restore.

12. The defendant did not comply with the master's order for discovery but the issue of a summons by the plaintiff for a peremptory order resulted in compliance by the defendant which filed its list of documents on the 5th November 1987 and bespoke copies of its listed documents on the 9th December in compliance with the request made by the plaintiff on the 16th November 1987. There followed a period of inactivity of more than four months which ended with the issue, on the 28th April 1988, of the plaintiff's summons for judgment under order 14 against the defendant for the amount claimed in the statement of claim with interest and, in the alternative, for an interim payment to the plaintiff under Order 29 rule 10 for such amount as the court should think fit. The summons was supported by an affidavit and a short supplemental affidavit both sworn by Mr. Isle, the plaintiff's managing director.

13. The defendant filed no evidence to resist the plaintiff's application but when the summons was heard by Master O'Donnell on the 23rd May 1988 he struck it out. The master helpfully indorsed his reasons for his decision on the back of the summons. They were to the effect that, in the light of the order made on the 18th February 1987 on the defendant's application to set aside the default judgment entered by the plaintiff on the 12th January 1987, the summons was misconceived because he had been persuaded that the decision of this court in Chan Pak Wai v. Thomas Young (Civil Appeal No. 18 of 1982) applied to the circumstances before him. He must therefore have accepted that this was an issue estoppel situation and that the plaintiff's summons should be struck out as an abuse of the process of the court because it sought to raise for a second time the question of the merits or otherwise of the defence which had already been determined by Master Perrior's earlier order made on the 18th February 1987 setting aside the plaintiff's default judgment.

14. The plaintiff appealed against Master O'Donnell's order. On the hearing of the appeal two further affidavits filed on behalf of the plaintiff and one affirmation filed on behalf of the defendant were read to Mayo J.. On behalf of the plaintiff Mr. Whitehead deposed that on the 18th February 1987, when Master Perrior heard the defendant's application to set aside the plaintiff's default judgment, he had made his order after reading the evidence of Mr. Whitehead and Mr. Lee and hearing the submissions of Mr. whitehead and the defendant's solicitor. According to Mr. Whitehead's evidence he could not recollect his firm receiving any copy of a proposed defence and counterclaim prior to the hearing before Master Perrior. He added that he could recollect no argument on the merits at the hearing. Mr. Millar, an assistant solicitor who had the conduct of the action on behalf of the plaintiff by the time of the appeal to Mayo J., confirmed Mr. Whitehead's evidence to the extent of deposing that there was nothing in his firm's file to indicate that any draft defence had been delivered to the firm prior to the hearing before Master Perrior on the 18th February 1987.

15. In the affirmation filed on behalf of the defendant Mr. Raymond Lee confined himself to affirming that he could not recall exactly what took place before Master Perrior and observing that it was clear that, having read Mr. Whitehead's earlier affidavit, Master Perrior had decided to accede to the plaintiff's request subject to imposing the condition of payment in by the defendant of the whole of the plaintiff's claim. He added that prior to the Order 14 summons the last stage in the proceedings had been the completion of mutual discovery on the 5th November 1987.

16. It was common ground at the hearing of the appeal in this court from the order of Mayo J., and it appears from the court file, that during the hearing before Mayo J. counsel for the defendant applied unsuccessfully for leave to file evidence on behalf of the defendant. There has been no appeal from the judge's refusal to allow the filing of such evidence.

17. In his extempore judgment Mayo J. rejected, rightly in our opinion, the defendant's argument based on issue estoppel. We do not dwell on the judge's reasons for doing so, because at the hearing of the appeal against the judge's order Mr. Litton for the defendant did not pursue the ground of appeal based on issue estoppel. He contended that the defendant did not have to go so far as to establish issue estoppel. In the course of dealing with the issue estoppel argument the judge rejected the defendant's contention that Order 14 proceedings were precluded because Master perrior must have satisfied himself, before setting aside the plaintiff's default judgment, that there was a defence on the merits. In the judge's view the question whether there was any merit in the defence to the action had not in fact been raised before Master Perrior, nor was there any need to raise it.

18. The judge did not review the evidence filed by the plaintiff in support of its application under Order 14 but when deciding that there should be summary judgment he observed that there was a wealth of evidence to suggest there was no defence to the claim and he stressed that the defendant had never condescended to assert on oath that there was any defence. He was not deterred from his decision by the delay in bringing Order 14 proceedings, notwithstanding that no satisfactory explanation had been given for the delay. However the plaintiff was appropriately penalised for its delay in the order for costs made by the judge.

19. In this court, although delay was relied upon in the grounds of appeal, Mr. Litton did not contend that the delay in issuing Order 14 proceedings was per se fatal, nor did he go so far as to suggest that absence of a satisfactory explanation on affidavit evidence or otherwise was fatal in the present case.

20. The effect of delay in bringing Order 14 proceedings was considered nearly 100 years ago (when the scope of the Order was much narrower than it is now) in Mclardy v. Slateum [1890] 24 Q.B.D. 505. The decision of the court in that case reflects the opinion of the Queen's Bench Division judges and masters regarding the practice under Order 14 at that time. It was to the effect that whilst the primary intention of Order 14 rule 1 was that the plaintiff should apply within a reasonable time after the appearance of the defendant and before a defence had been delivered in the ordinary course, this was not compulsory in all cases.

21. The same reflection of current English practice is to be found in the very brief report of the decision of the Court of Anneal in Bath Press Ltd. v. Rose in the Times newspaper, 13th July 1987 to the effect that:

"Where the court was satisfied that there was no defence to a plaintiff's claim, the fact that the plaintiff had not applied for summary judgment under Order 14 of the Rules of the Supreme Court until after issuing a summons for directions in the action following the close of pleadings did not raise any estoppel or technical objection which would prevent the plaintiff succeeding on its application for summary judgment."

22. Decisions at first instance in Hong Kong have not shown a consistent approach regarding the practical effect of the concluding observation in McLardy v. Slateum at pp. 506-7 that:

"If a plaintiff makes his application after the ordinary time, the onus is on him to show that the delay is justifiable under the special circumstances of the case."

23. In Timur Jaya Co. Ltd. v. United Asia Trading Co. [1980] H. K.L.R. 768 Mr. Commissioner Hooper (as he then was) held that as there was nothing in the affidavits to show that the delay was justifiable in the case before him, on that ground alone summary judgment under Order 14 should be denied. In Kaufman v. Maker Industrial Co. Ltd. [1982] H.K.L.R. 20 Fuad J. (as he then was), accepted that it would be the most convenient course for the plaintiff's supporting affidavit to acknowledge the new situation created by the delivery of the defence and explain why the Order 14 application was not made earlier. However, he went on to indicate, obiter, at page 22C that:

"If the delay was not too great, provided a defence filed did not disclose any arguable case, I would be inclined to grant an application for summary judgment notwithstanding the delay, and consider penalizing the delay by an appropriate order for costs."

24. In WOC Finance Company Limited v. Fullrate Enterprises Limited [1982] H.K.L.R. 474 Hunter J. (as he then was) declined to follow the Timur Jaya case which seemed to him to be inconsistent with his understanding of the then current English practice. He observed at page 476F:

" There are simply no rigid time limits of any sort on applications under Order 14, however they are put, either as express time limits or by reference to a reasonable time.

    It follows regrettably that I cannot agree with the decision in Timur Jaya [1980] H. K. L. R. 768. I am as convinced as I could be, that that decision does not represent the current practice in the U.K. to which I think I am directed to turn whenever the practise here is silent. In this respect there is in our rules of the Supreme Court no express time limit, anymore than there is in the U.K. From my part I think it would be unfortunate if it were introduced. I think that the matter is much better left to general exhortations that these matters should not be unduly delayed rather than to rules. I think that delay is a factor which the court can take into account when looking at the substance and the merits of the application, in agreement with Fuad, J Kaufman v. Maker Industrial [1983] H. K. L R. 20."

25. We agree with the approach adopted in the Kaufman and WOC Finance cases which is consistent with that of the English Court of Appeal in the Bath Press case. In the light of the modern English practice as indicated by that case we do not consider that the concluding observation in McLardy v. Slateum should be regarded as requiring summary judgment to be denied by reason only that delay is not satisfactorily explained. Order 14 provides a procedure for summary judgment where the court is satisfied that there is no defence to the claim. Although the rules clearly contemplate that ordinarily an application for summary judgment will be made before a defence has been filed, they impose no time limit and it is not for the court to take it upon itself to impose one indirectly as a matter of practice.

26. There may also be circumstances where the delay is material to and adversely affects the substance and merits of the application. However each case must depend on its own facts and the court should approach each application on the footing that if the plaintiff has satisfied it that notwithstanding the delay there is no defence to his claim, he is entitled to summary judgment, albeit, subject to questions of costs on account of delay, unless there are special circumstances which make summary judgment unjustifiable.

27. Mr. Litton developed his argument on the consequences of the delay in the present case in two ways. He first contended that when the parties had actually joined issue on the pleadings and had gone as far as issuing a summons for directions, which included an application for a three-day hearing, and this had been followed by the completion of discovery (which is concerned with documents relating to matters in question in the action), the subsequent Order 14 application was an abuse of the process because there was no basis upon which the plaintiff's managing director, Mr. Isle could have sworn to his belief that there was no defence to the action.

28. We are unable to accept that the joinder of issues on pleading followed by discovery precludes a plaintiff from subsequently deposing his belief, based on his knowledge of the facts and legal advice given to him, that there is no defence to his claim. Were it otherwise the Bath Press case (which only came to light in the course of the hearing) would be wrongly decided because the court there upheld summary judgment given after issues had been joined and the pleadings closed.

29. Furthermore if, as appears to have been the position in the present case, the reason for the long delay in issuing Order 14 proceedings by the plaintiff was that his solicitors failed to advise him of the availability of the remedy until after there had been a change of assistant solicitor having the conduct of the action, we can see no reason why the plaintiff's managing director should be disqualified by the closing of pleadings and issue of the summons for directions followed by discovery (on the basis that the application for directions as to trial had been adjourned sine die) from deposing on oath his belief that there was no defence to the action.

30. In this connecton, the court was told by counsel for the plaintiff that the explanation for the delay in this case was that there had been a change of solicitor. This was understood at the time by the members of the court to mean a change from one firm to another. Examination of the relevant documents shows that the writ in the action and the Order 14 summons were issued by the same firm, yet by change of solicitor the plaintiff's counsel must have meant that Mr. Whitehead was at some undisclosed stage replaced by Mr. Millar as the assistant solicitor having the conduct of the action. It is unfortunate that the court, when it asked counsel for the explanation for the delay in bringing Order 14 proceedings, was not given a less disingenuous answer.

31. Mr. Litton's second argument stemming from the consequences of delay was that there was plainly an arguable case for saying that the defendant had a good defence to the claim, because as early as the 18th February 1987 Master Perrior had made an order under Order 13 rule 9 setting aside the default judgment entered by the plaintiff. The master must therefore, Mr Litton contended, have been satisfied that the defendant had an arguable defence then. Accordingly, whether or not this gave rise to an issue estoppel was, Mr. Litton submitted, academic, because when the plaintiff knows, or ought to know if properly advised, that the defendant has an arguable defence, an application for summary judgment is an abuse of the process.

32. In our judgment this argument is unsound, both as to fact and law. As a matter of fact, as the judge pointed out, Master Perrior could not possibly have formed any opinion whatsoever regarding the merits of the proposed defence of the defendant on the 18th February 1997 when he set aside the default judgment. He had no defence or draft defence before him and he had no evidence before him which even touched on the nature of the proposed defence or its merits. To contend that Master Perrior must under such circumstances have been satisfied that the defendant had an arguable defence on the merits when he set aside the default judgment is manifestly unsustainable.

33. Furthermore, the judge rightly held that the merits of the defence were not a necessary issue before Master Perrior and that the sole issue before Master Perrior was the question of the alleged misunderstanding between the solicitors. Mr. Litton's argument before this court and junior counsel's argument below seem to have been based on the reasoning that because there is an almost inflexible rule (see The 1988 Supreme Court Practice, Vol. I, para. 13/9/5) that before a regular default judgment can be set aside there must be an affidavit showing a defence on the merits, it follows from the fact that the judgment was in fact set aside by Master Perrior that he must have been satisfied that the defendant had an arguable case.

34. This proposition is demonstrably not borne out by the facts. Moreover, there is no rigid rule of law (as distinct from guidelines laid down by the court regarding the normal exercise of its discretion) that, when exercising its unqualified discretionary power under Order 13 rule 9 to set aside a regular default judgment, the court is bound to insist on an affidavit of merits and to be satisfied that an arguable defence is established before it will set aside the default judgment. These principles were fully considered in Evans v. Bartlam [1937] A.C. 473 (H. L.) where it was accepted that as an almost invariable rule of practice the court would insist on an affidavit of merits before exercising its discretion and setting aside a default judgment but it was emphasised that there could be exceptional cases where this rule of practice could be departed from. Thus Lord Atkin observed at p. 480:

"But in any case in my opinion the Court does not, and I doubt whether it can, lay down rigid rules which deprive it of jurisdiction. Even the first rule as to affidavit of merits could, in no doubt rare but appropriate cases, be departed from."

35. It seems to us that Master Perrior found himself on the 18th February 1987 dealing with such a rare and appropriate case where he could and did properly deal with the defendant's application to set aside the default judgment without regard to the question whether an arguable defence had been disclosed. Even if that were not so, the master did not call for an affidavit of merits and cannot be taken to have made any express or implied finding regarding the merits of the proposed defence of the defendant.

36. The remaining ground of appeal and argument advanced by Mr. Litton on behalf of the defendant can, we think fairly and broadly be summarised as contending that in all the circumstances the plaintiff's supporting evidence verifying the statement of claim was insufficient to enable the court to grant summary judgment.

37. The issues arising on the pleadings which the defendant seeks to contest if leave to defend were to be given are concerned with the additional work (in respect of which the plaintiff claimed $583, 120.06) and delay (in respect of which the defendant originally claimed $458,000 damages but later pleaded an unspecified sum). So far as the additional work was concerned the defendant had admitted that the Housing Authority had ordered modifications in the specifications of the works to be carried out but denied the plaintiff's allegation that the defendant had submitted to the plaintiff major changes in the specifications of the work which had given rise to the extra cost. The defendant also denied the allegation in the statement of claim that the additional cost had been accepted by the defendant. Mr. Litton stressed that there was no alternative claim in the statement of claim based on quantum merit.

38. In its defence and counterclaim the defendant sought to raised the issue of delay, pleading that after the work had been modified the parties had agreed to an extended completion date, namely in or about mid-May 1985 but that the work had not been completed until on or about the 15th January 1886 and that the defendant had thereby suffered loss and damages. Although the nature and extent of the damages were not particularised or quantified the defendant relied on them as a set-off against the whole of the plaintiff's claim and as the basis for its counterclaim. Mr. Litton conceded that the defendant could not, as a matter of pleading, resist a demand for particulars of the nature and extent of the damages in question in accordance with the principles applied in Perestrello E Companhia Limitada v. United Paint Co. Ltd. [1969] 1 W.L.R. 570 (C.A.).

39. Whilst the issues pleaded do not in themselves provide a basis for showing that there are triable issues on the facts of the present case, the fact that the action has proceeded beyond the close of pleadings and discovery is a material consideration when assessing the evidence in support of the Order 14 application. The fact that the defendant has filed a defence and counterclaim creates a situation which cannot be ignored by the plaintiff 's supporting evidence.

40. In this case the plaintiff did not file a common form affidavit but relied on the detailed affidavit evidence of Mr. Isle which exhibited the relevant correspondence and documents and contained forensic argument. Counsel for the plaintiff told the court that in taking this course the plaintiff had emulated the similar conduct of the plaintiff sub-contractor in Ellis Mechanical Services Ltd. v. Fates Construction Ltd. [1976] 2 B. L. R. 57 (C.A.). The requirements of Order 29 rule 10(3)(b) requiring documentary evidence to be exhibited in support of a claim for an interim payment must also have been to some extent responsible for the evidence filed.

41. Under Order 14 rule 2(1) the plaintiff's affidavit evidence in support must verify the facts on which the claim is based and state that in the deponent's belief there is no defence to that claim. If the plaintiff complies with that requirement in a case to which Order 14 applies, then the effect of rules 3 and 4 is that the plaintiff is entitled to judgment unless the defendant can show by affidavit or otherwise that there is an issue or question to be tried that there ought for some other reasons to be a trial.

42. Mr. Isle's affidavits did purport to verify in detail the facts pleaded in the statement of claim and he deposed (albeit on the basis of being so "informed" by an undisclosed source) that he verily believed there was no defence to the action. The defendant having filed no evidence, and this not being a case in which there can be "some other reason" for not giving summary judgment, Mr. Litton relied on the technical arguments which have been dealt with above and sought "otherwise" to show that there were triable issues which were identifiable by reference to the plaintiff's detailed evidence and demonstrated that the judge should not have given summary judgment.

43. As regards the additional work we consider that the judge was right in holding that there was no triable issue. The substance of the pleading in the statement of claim amounts to the assertion that the changes in the work had been submitted to the plaintiff by the defendant, that the plaintiff had provided the defendant with full details of the extra materials and costs involved and that the defendant had "accepted" the "additional costs". Mr. Litton relied not only on the denials in the defence on these allegations but contended that the evidence of Mr. Isle did not support the pleading because it began by the bald confirmation of the allegations in question(made in paragraph 4 of the statement of claim) and then went on to refer to correspondence which made it clear that Mr. Isle was relying on inferences he drew from that correspondence. Furthermore Mr. Isle had deposed (albeit in breach of order 14 rule 2(2) by reference to an undisclosed source) merely that the costing of the additional work had been discussed between representatives of the parties before the relevant invoices had been sent to the defendant.

44. We have no difficulty in the context of order 14 proceedings where no evidence has been filed by the defendant in inferring, as does Mr. Isle, that the defendant ordered most of the additional work and by implication must be taken to have agreed to the remainder being carried out by the plaintiff. The need for the additional work arose because the Architect, in his letter dated the 2nd July 1984 to the defendant, had confirmed that the span of the vault in the skylight was to be in accordance with a specified drawing. This was followed by a letter dated the 12th July 1984 from the defendant to the plaintiff referring to a meeting held on the 10th July and enclosing "for your attention" the Architect's letter. By a letter of the same date the plaintiff referred to "our discussion" and informed the defendant of additional work ("the first additional work") priced at ?0,301.61 which was occasioned by the change in specification. This letter mentioned that the work quoted for excluded the cost of a 200 x 200 mm steel hollow section and additional installation ("the second additional work") which would be quoted later.

45. On the 22nd October 1984, by which time the design work concerning the additional work had been the subject of correspondence between the parties and the Architect had approved the details, the plaintiff's letter to the defendant reiterated, by reference to its letter dated the 12th July 1984 that it would be claiming for the additional work outlined in that letter but mentioned that the plaintiff was still looking for a cheaper quotation for the 25 tonnes of steel which was required for the job. There followed a letter dated the 17th December 1984 from the plaintiff to the defendant quoting for the second additional work a sum of $253,000 made up of four items for the supply of steel for the steel hollow section together with two items of labour for painting and installation respectively and a design fee. This letter stated that as the plaintiff did not want to interrupt the progress of the work it had started the alteration work while waiting for the claim to be settled. The letter concluded:

"You will find the fees we mention are reasonable and if you have any queries, please let us know immediately. If you have no further objection to the above within the next thirty days, we shall invoice you accordingly."

46. By its letter dated the 18th March 1985 the plaintiff, referring to "our discussion" of its claim and to its letter dated the 12th July 1984, sent the defendant another quotation for the items constituting the first additional work. This time the quotation was in Hong Kong dollars and the total price was $270,120.06. An invoice for this work followed on the 31st March 1985.

47. The exhibited correspondence shows no reply from the defendant to the above mentioned letters, quotations and invoice. However a letter dated the 24th May 1985 from the defendant to the plaintiff refers to a meeting on the previous day between representatives of the Housing Department, a representative of the defendant and a representative (Mr. George Hsu) of the plaintiff regarding the skylight installation. It continues to its conclusion as follows:

"During the conversation, Mr George Hsu have [sic] explained the reason for delay and reassured that the materials of the skylight system for the footbridge will be delivered on site on 28th May, 1985 and the installation works of the skylight system will be completed within 7-10 working days a after such delivery.

In principle, we have no objection to your proposed installation programme. Please take the immediate action to comply with the agreed delivery and installation schedule."

48. Read in the light of all that went before it seems to us that the passage quoted above from the defendant's letter provides clear evidence from which it can only be inferred that the defendant was directing the plaintiff to get on with the work for which quotations had been received months before without any hint from the defendant that they were not accepted. The overwhelming implication as a matter of commercial reality and in the absence of any evidence to the contrary from the defendant in the context of Order 14 proceedings must be that the defendant impliedly represented by its silence that it accepted the plaintiff's previous quotations.

49. The matter does not however end there, because, when the plaintiff sent the defendant an invoice dated the 31st May 1985 in respect of the second additional work the amount invoiced was $313,000 instead of $253,000 which was quoted in the plaintiff's letter dated the 17th December 1984. The increase of $60,000 related to three items of extra cost attributed to additional freight and packing ($15,000), additional installation cost ($30,000) and additional handling ($15,000). The invoice for these additional items was sent only a week after the letter dated the 24th May 1985 from the defendant and at least six months before the work was completed.

50. It follows that having been invoiced for the additional $60,000 on or about the 31st May 1985 the defendant maintained silence and stood by for about six months while the work was in progress and until it was completed on or about the 1st January 1986. Furthermore it was not until the 23rd October 1986 when litigation had been threatened that the plaintiff was informed that the defendant would only pay for any of the additional work if the claim was approved by the Architect (no doubt in the form of a claim by the defendant under the main contract).

51. In a commercial context where the relationship between the parties was that of main contractor and sub-contractor it must have been obvious to the defendant as the months went by and the work continued to completion that the plaintiff was labouring under the delusion that not only its original quotations for the additional work but also its additional claim for $60,000 in the invoice dated the 31st May 1985 had been accepted. In such circumstances we consider that the defendant was under a duty to disabuse the plaintiff. Instead of doing this it appears from its letter dated the 23rd October 1986 that it simply referred the claim to the Project Architect "for approval" on the 11th November 1985 and maintained silence about it thereafter until on or about the date of that letter. In our judgment such conduct gives rise to estoppel by silence: see Spencer Bower and Turner on Estoppel By Representation, 3rd' edition, at paragraphs 55 and 59. We therefore conclude, as the Judge did, that no triable issue has been shown regarding the additional work in respect of which the plaintiff claimed $583,120.06.

52. We have found the question of delay more difficult. The judge referred to it in the following passage of his judgment immediately after observing that there was a wealth of evidence to suggest that there was no defence to the claim:

"The only complaint made - and that at a very late stage - is that the Plaintiffs were guilty of delay. The Defendants' counterclaim is based on this."

He does not return to the question of delay but seems to have accepted that generally the plaintiff's detailed evidence and the lack of evidence from the defendant disposed of the matter.

53. On the one hand we give no weight to the defendant's pleading of an unquantified unparticularised set-off and counterclaim based on delay and unsupported by any evidence from the defendant. On the other hand the evidence in the supporting affidavit of Mr. Isle contains matter to which the judge did not advert which seem to us, even in the absence of evidence from the defendant, to support the contention that there is, lurking in the correspondence, an arguable, albeit somewhat shadowy defence which, if successful at trial would result in a partial set-off against the plaintiff's claim.

54. Mr. Isle exhibited the letter dated the 24th May 1985 referred to above from which it appears that on the 23rd May 1985 the question of delay in the work was discussed and explained by a representative of the plaintiff. The letter is expressed to record the understanding of the defendant (which was not contradicted by the plaintiff) that the plaintiff had given an assurance that the relevant materials would be delivered on site on the 28th May 1985 and that the installation work would be completed within 7-10 working days thereafter. The letter concludes by requesting the plaintiff to comply with the agreed delivery and installation schedule. Mr. Isle also exhibited the letter from the plaintiff dated the 17th January 1986 recording that the work was satisfactorily completed on the 15th January 1986.

55. The combined effect of the contents of those two letters is to support substantially the pleading of the defendant in paragraph 4 of the defence that a revised completion date was agreed and that the plaintiff failed by about six months to comply with it. This is all denied in the Reply which pleads at paragraph 5 that delivery of the rooflight was rendered at large.

56. Although these denials occur in the Reply, Mr. Isle does not deny in his affidavit that the latter dated the 24th May 1985 records an agreement of the parties fixing a completion date within 7-10 working days after the 28th May 1985, nor does he deny that the plaintiff failed by about six months to comply with that completion date. Instead he concentrates on asserting that it has never been suggested to the plaintiff that the plaintiff has caused any delay to the construction of the main project which comprises two buildings whereas the plaintiff was only involved with one of them.

57. In the absence of denial by Mr. Isle it seems to us that the letter dated the 24th May 1985 is to be taken at its face value as showing that there was delay on the part of the plaintiff in breach of its contract with the defendant. This would entitle the defendant to at least nominal damages.

58. As regards substantial damages no express indication of a complaint based on delay is evident in the correspondence before the issue of the writ on the 9th November 1986. Such a complaint may have been implicit in the defendant's letter dated the 23rd October 1996 in which it indicated that it did not regard itself as bound to pay the sum of $583,120.06 for the additional work but would pay the plaintiff $280,000. By then the defendant had paid $800,000 of the original supply contract price of $1,495,000 so that if it paid a further $280,000 it would be holding back $415,000. It appears from the plaintiff's letter dated the 18th November 1986 that discussions took place between the parties on the 12th November 1986 which led the plaintiff to understand the defendant's attitude to be be that it was entitled to deduct $458,000 from the original contract price for "liquidated damages for 15 days" and was prepared to pay the plaintiff, not $280,000, but $237,000 which would make up the balance of $1,495,000.

59. By its letter dated the 24th November 1986 the defendant made it clear that it was claiming to be entitled to "a deduction of $458,000 for damages for delay". The main contract contained a liquidated damages clause for delay. On discovery the defendant disclosed, as on of the documents relating to the matters in question in the action, an interim certificate issued issued by the Project Architect on the 8th April 1986 under the main contract in which the sum of $458,000 was deducted from the sum due to the defendant as liquidated damages. This certificate must be the basis for the defendant's claim in the correspondence to be entitled to hold back $458,000 from the supply contract price.

60. In its letter dated the 1st December 1986 the plaintiff contended that the defendant had provided no evidence of any loss suffered by the defendant in support of the claimed deduction and in his affidavit Mr. Isle emphasised that it had never been suggested that the plaintiff had caused any delay to the construction of the project. On the other hand it seems to us that if a main contractor is claiming, as the defendant did, to be entitled to deduct $458,000 for delay from his sub-contractor it is implicit from the claim itself that delay of the project itself is being alleged.

61. Mr. Isle deposed that he was "informed" (presumably meaning that he was advised) that, in the absence of a liquidated damages clause and of a clause making time of the essence of the supply contract, the defendant was not entitled to deduct from the invoiced sums due to the plaintiff monies due from the defendant to the Housing Authority. There being evidence to support the pleading by the defendant of as much as about six months delay, it seems to us (as we have indicated above) to be strongly arguable that even if time was not made of the essence of the supply contract the plaintiff was in breach of the contract when it completed so late.

62. We are not satisfied that the absence of a liquidated damages clause in the supply contract rules out the defence based on delay in this case. The specification for the work to be done made specific reference to the bill items in the main contract upon which the specification was based, so that it is arguable that it must have been in the contemplation of the parties that delay on the part of the plaintiff could result in liquidated damages being payable by the defendant to the Housing Authority. On this footing it seems to us to be arguable that the defendant was entitled to retain an amount not exceeding the liquidated damages of $458,000 against the moneys payable to the plaintiff: see Hudson, 10th edition, p. 748.

63. Applying the approach adopted by Lord Denning in Ellis Mechanical Services Ltd. v. Wates Construction Ltd. [1976] 2 B.L.R. 57 at p. 61 and looking for what is "indisputably due" to the plaintiff we feel unable, with respect, to agree with the judge that there is no triable issue regarding delay in this case. There may well be difficulties in the way of the defendant and the defence based on delay is admittedly one which may well not succeed, but there is enough in the evidence filed by the plaintiff to raise in our mind a reasonable doubt whether the plaintiff is entitled to summary judgment for its full claim and to identify genuine issues of fact and law which entitle the defendant to a trial.

64. However there is no evidence whatsoever to support a set-off in excess of $458,000. We therefore allow the appeal to the extent only of varying the order of Mayo J. by reducing the judgment sum of $1,278,120.06 by $458,000 to 5820,120.06, reducing the interest payable by the appropriate amount, directing the payment into court by the plaintiff of the sum of $458,000 together with the appropriate amount of interest on that sum and giving the defendant unconditional leave to defend up to the amount of its set-off not exceeding 4458,000.