LEADER CIVIL ENGINEERING CORPORATION LTD v. WELL-PRO ENGINEERING LTD

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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JUDGMENT

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Background

1. The plaintiff (Leader) entered into a contract with the government for the construction of some storm water drains. The defendant (Well-Pro) was the sub-contractor from Leader for the whole of these works. Well-Pro was to be paid for work done at the rates stated in the main contract bill of quantities. Leader was entitled to a management fee of 3% and the sum of $500,000 to be deducted from the interim payments otherwise due to Well-Pro. The subcontract provided that Well-Pro was to be paid from time to time within seven days of Leader having received payment. Well-Pro assumed liability to suppliers and other sub-contractors for contracts entered into by Leader in connection with the works, subject to Well-Pro counter-signing "the relevant documents".

2. On 26 April 1997, Leader commenced proceedings against Well-Pro.

3. Well-Pro was in default and, on 15 July 1997, Leader obtained default judgment for the two sums mentioned, together with interest at the rate of 11.5% from 16 June 1997 to the date of judgment, and at the judgment rate thereafter, and fixed costs in the sum of $1,550. Leader also obtained judgment for damages to be assessed and costs to be taxed.

4. Also on 15 July 1997, Well-Pro issued a summons asking that the default judgment be set aside and that it be at liberty to file its defence within 21 days.

5. This is the application before me.

6. I have jurisdiction under Order 13, rule 9, to "set aside or vary any judgment entered" in default. I should do so, however, only when the defendant is able to show that its defence has a real prospect of success.

The Plaintiff's Claims

7. In its statement of claim dated 16 June 1997, Leader makes claims under three different heads -

The Loans

8. As to the $9 million odd claimed as loans and disbursements, Well-Pro disputes the quantum of this claim, and says that, in any event, the amount is not due and owing.

9. Regarding the quantum, Mr Aglionby has calculated the "admitted" items, and these amount to $4,677,075.38. Miss Cheng does not challenge the mathematics.

10. Well-Pro says that the disputed items are not loans and are not payments or disbursements requested by it.

11. Leader seems to concede this. Leader says that the items disputed by Well-Pro were incurred in relation to the completion of the works, although Well-Pro did not request that each of the payments be made. Some of the items are debit notes for interest. Well-Pro, rightly it seems, disputes some of the rates of interest charged. I have more to say about this interest in a moment. Leader says that most of the disputed items were for payment of staff to do work Well-Pro agreed to do, or for payments to suppliers or sub-contractors engaged to complete Well-Pro's work. The contract between Leader and Well-Pro provided that, where Leader contracted with suppliers or sub-contractors, Well-Pro would be liable but this was subject to Well-Pro's "counter-signing of the relevant documents". There is no evidence adduced by Leader showing that Well-Pro did so counter-sign for these disputed items.

12. It seems to me that in relation to the disputed items, Well-Pro has, on its own case and the evidence adduced by Leader itself, a real prospect of success in establishing that it is not liable in respect of these items on the basis of the case pleaded by Leader.

13. As to the "admitted" items, Well-Pro says that repayment is not presently due and owing. Well-Pro alleges that it was orally agreed with Leader that repayment was to be made by way of deductions from payments received by Leader and due to Well-Pro under the contract. Well-Pro also points to a letter dated 23 May 1995 by it to Leader. Leader does not dispute that this does reflect the agreement between them. This letter says that the loans would be repaid "in ten equal instalments with interest at Prime + 3% commenced from August 1995. The money will be deducted from each payment due to us." The letter goes on, under the heading of "Security of Loan" to speak about money that will become payable to Well-Pro. Well-Pro also relies on the conduct of the parties under which the repayments were, in fact, made from money due to Well-Pro. The correspondence between the parties appears to bear out this course of conduct. It is not disputed by Leader that there may be further payments accruing to Well-Pro.

14. This defence, in my view, has a real prospect of success.

15. Regarding the interest items forming part of this claim, Mr Aglionby concedes that some of them are charged at the rate of prime rate plus 5%, and this is not payable on any basis pleaded by Leader. Mr Aglionby says the judgment should be varied to reflect this.

16. Miss Cheng argues that, if the judgment was entered for too much, it is irregular. I should set it aside and not vary it in the absence of a summons by the plaintiff for leave to amend the judgment. Miss Cheng points to what is said at paragraph 13/1/13 in "The White Book". This passage certainly bears out what she says. I do not accept, however, that this reflects modern practice. The rule gives me jurisdiction to vary a judgment. I should exercise that jurisdiction to do justice between the parties without being constrained by technical rules. In The Iran Nabuvat [1990] 1 WLR 1115, in which, on a application by a defendant to set aside a default judgment, the plaintiffs admitted that there was a defence to part of the sum for which judgment had been entered, the lower court set aside the judgment and gave judgment for the lesser sum. Lord Donaldson said, at 1119C, that the judgment should not have been set aside, with a new judgment entered, but should have been amended as to the amount. This, in my view, is the sensible approach to this sort of situation.

17. All this, however, is cold comfort to Leader because I have found that the Well-Pro has a defence to this claim that has a real prospect of success.

The Quantified Loss and Damage Claim

18. Here Leader claims the sum of $5,534,899.88 being loss and damage suffered by Leader because Well-Pro failed to carry out part of the contract and Leader did so itself.

19. The only evidence from Well-Pro on this claim is that Leader "intended and did unilaterally take out part of the defendant's works at Woosung Street and Ning Po Street and executed the same. As such the defendant is not liable to such costs."

20. Leader's evidence on this point is a letter dated 20 September 1996, countersigned by Well-Pro. Saying that"... we shall be carrying out on your behalf of the carriageway reconstruction and associated works, for works as necessary for earliest completion of the whole works, including those (but not limited to) Ning Po Street and Woosung Street. All costs incurred (including subcontractor cost) will be contracharged to your account."

21. Well-Pro does not dispute this agreement, and does not dispute the quantum claimed.

22. In this respect, Well-Pro has not established a real prospect of success in its defence.

The Unquantified Claim for Loss and Damage

23. Leader obtained judgment for unquantified loss and damage on the basis that Well-Pro failed to carry out maintenance work during the maintenance period.

24. In its draft defence, Well-Pro simply denies this claim, but it adduces no evidence at all of the nature of its defence.

25. Well-Pro has not satisfied me that it has any real prospect of success of defending this claim.

The Counterclaim

26. Well-Pro seeks to make an counterclaim against Leader both as a defence and a substantive claim. This claim is framed in alternative ways, but it boils down to a claim for payment over and above the contract price for prolongation, variations and miscellaneous matters. This involves making a claim to government - the employer.

27. Leader's short answer to this is that Well-Pro is precluded from making this claim because it agreed not to do so.

28. The contract between the parties were entered into in early April 1993. At that time, Mr Alfred Man was a shareholder and director of both Leader and Well-Pro. On 28 February 1995, Mr Man sold his shares in Leader. The agreement of sale of those shares required the sellers to deliver to the purchaser a letter of waiver from Well-Pro of its claim against Leader. Mr Man made the first affirmation in support of Well-Pro's application to set aside the judgment. On 1 April 1995, Mr Man signed such a letter of waiver on behalf of Well-Pro in the form of a deed sealed with the common seal of Well-Pro. This deed is addressed to Leader and reads as follows -

29. Although Miss Cheng sought to argue this deed does not prevent Well-Pro from suing under the contract, there is really no answer to the point made. There is no ambiguity in the deed. By its terms, Well-Pro waived its rights to claim as it now seeks to do.

30. I cannot, and do not, say that Well-Pro may not persist in its claim against Leader, but, as a defence to Leader's claim, I must hold that it does not have any real prospect of success.

31. I should say here that Leader does not suggest that this deed prevents Well-Pro from relying upon its defence to the claim for $9,059,883,12. I do not think it could say that. The deed precludes Well-Pro from suing for additional amounts over the contract price, but does not prevent it from saying that it was agreed that amounts due to Leader would be repaid from periodic payments due to Well-Pro under the contract.

Conclusion

32. In my view, Well-Pro has established that it has a real prospect of success in respect of the claim for which Leader obtained judgment in the sum of $9,059,883,12. It has not satisfied me that it has a real prospect of success in defending the other claims in respect of which Leader obtained judgment. In the result, I set aside only the judgment in respect of the sum of $9,059,883.12. Well-Pro is to file a defence to this claim within 14 days.

Costs

33. The matter of costs has not been argued, but my preliminary view is that the honours were equally divided in the contest. Accordingly, I make an order nisi that the parties pay their own costs of the application.