LI CHUEN KWAI v. PO LAM CONSTRUCTION DEVELOPMENT LTD

HCA 2376/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2376 OF 2013

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D E C I S I O N

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Introduction

1. This is the defendant’s appeal against the decision of the Master dated 16 June 2014, ordering that summary judgment be granted in favour of the plaintiff against the defendant for the sum of HK$1,350,986.84, together with interest thereon and costs of this action.

Factual background

2. The defendant is a company incorporated in Hong Kong, carrying on the business of constructing “ting” houses for “ting” right owners.

3. Sometime in 2008, after some discussions, the plaintiff and one Lo Shu‑sang on behalf of the defendant orally reached agreement for the plaintiff to supply building materials to the defendant for the construction of “ting” houses by the defendant at the defendant’s various construction sites, and for a showroom to be set up at the construction sites of the defendant (“the Oral Agreement”).

4. The plaintiff is suing on the Oral Agreement in the present action.  Whilst the defendant accepts that an oral agreement was reached with the plaintiff, there is factual dispute as to what terms were orally agreed on that particular occasion:

(1) The plaintiff’s case is that there was oral agreement on the terms as set out in the Statement of Claim and as elaborated in the plaintiff’s affidavit evidence.

(2) The defendant’s case is that the Oral Agreement was a simple one.  It was agreed that the plaintiff would be allowed a margin of $10,000 per house on top of the plaintiff’s cost of sourcing the building materials.

5. Since the Oral Agreement:

(1) the plaintiff did set up showrooms at the defendant’s construction sites at Tsang Tai UkVillage and at Ma Wan;

(2) the defendant did place orders for building materials with the plaintiff in relation to the “ting” houses specified in Schedule A of the Statement of Claim;

(3) the plaintiff did deliver building materials ordered by the defendant since late 2008; and

(4) 38 payments were made by the defendant to the plaintiff for the building materials delivered, as specified in Amended Schedule B of the Statement of Claim.

6. As a matter of practice, all payments from the defendant to the plaintiff were:

(1) not made upon each delivery nor on a house-by-house basis.  Instead, as a matter of fact, the plaintiff and the defendant maintained a “running account” between them.  The plaintiff accepts that the running account was in place but disputes that this arrangement was mutually accepted; and

(2) made in round sums (as can be seen in Amended Schedule B).  Whether the lump sum figure paid each time by the defendant to the plaintiff was specified by the plaintiff each time is in dispute.

7. In late 2009, there is no dispute that the defendant did orally propose to the plaintiff that the price of the building material for each house be fixed at $45,000.  However, whether the plaintiff agreed to the $45,000 arrangement is in dispute.

8. It is also the defendant’s case that in early 2012, the fixed price of $45,000 was increased to $55,000 by mutual agreement of the plaintiff and the defendant.  The plaintiff completely denies this. 

9. On 14 May 2013, the plaintiff went to the defendant’s office with two alleged “Receivable Summaries” and a set of Materials Lists. However, what happened in the defendant’s office resulting in the defendant’s chop and the Chinese characters “未確認對賬單” appearing on the two Receivable Summaries is in dispute.

10. The defendant stopped making payments to the plaintiff since September 2013.

Relevant legal principles

11. As far as the plaintiff’s claim is concerned:

(1) An application for summary judgment must be supported by an affidavit verifying the facts on which the claim is based [Order 14, rule 2(1), Rules of the High Court].

(2) The Statement of Claim must be good and complete in itself; any defect or omission in the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit.  If the defect is one of substance, the application for summary judgment will be dismissed [see: Hong Kong Civil Procedure 2014 at Practice Note 14/1/5].

(3) This means that an Order 14 application has to proceed on the case as pleaded, and it is those facts (as pleaded) which have to be verified on affidavit.

(4) Where the assertions in the plaintiff’s affirmation constitute a material deviation from the plaintiff’s pleaded case, the plaintiff will have failed to verify his claim as pleaded, and summary judgment should not be granted [Lin Jan v Long Xiaobo, HCA 1516/2012 (Judgment dated 4/09/2013)].

(5) Equally, summary judgment will not be granted where the plaintiff’s affidavit evidence is materially different from and inherently inconsistent with his/her case in the Statement of Claim [see: Sin Yuk Hung v Sin Tung San, HCA 474/2013 (Judgment dated 18/12/2013)].

12. As far as the defendant’s defence is concerned:

(1) The defendant shoulders the burden to satisfy the court that he has a real or bona fide defence (ie that there are triable issues), or that there ought for some reason to be a trial of the plaintiff’s claim.

(2) However, a complete defence need not be shown.  The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(3) Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini‑trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(4) The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, ie capable of being believed.  If so, the defendant must have leave to defend.

(5) Whether the defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation bur rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.

13. Where there are unexplained features in both the claim and the defence, no tentative assessment of strengths should be made, but unconditional leave to defend should be given [see: Hong Kong Civil Procedure 2014 at Practice Note 14/4/9].

14. Further, where (as here) an oral contract is sued on and its terms are in dispute, summary judgment must be refused unless the plaintiff can satisfy the court either that on the defendant’s version he is entitled to judgment, or that the defendant’s version is not truthful or capable of belief [see: Hong Kong Civil Procedure 2014 at Practice Note 14/4/11].

Plaintiff’s claim is problematic

15. In the present case, there is clear variance between the plaintiff’s claim as pleaded in the Statement of Claim and the plaintiff’s claim as asserted in the plaintiff’s affirmation in support of his Order 14 application.

16. The alleged agreed term on price pleaded in the Statement of Claim is simply different from that of the verifying affidavit.  In the Statement of Claim, the plaintiff’s pleaded terms on price under the Oral Agreement is that the defendant agreed to buy from the plaintiff the materials for the properties according to each and every Materials List.

17. Yet, a substantially different term on price came to be asserted in the plaintiff’s affirmation.  Indeed, there is just no mention (in the affirmation) of the “Materials List” being involved in determining the price payable by the defendant.

18. Further, other “material terms” as verified on affidavit are different from the “material terms” as pleaded in the Statement of Claim.  By comparing the two versions, the following can be noted:

(1) The Statement of Claim pleaded that only five material terms were orally agreed, whereas the verifying affirmation deposes that 14 material terms were orally agreed.

(2) There was no plea at all in the Statement of Claim of the “Price List” and “Purchase Form”, and yet, in the case put forward in the verifying affidavit, these two documents were of central important on the plaintiff’s case.

(3) There is equally no mention at all in the Statement of Claim of “Special Material”, “Special Purchase Requests”, or “Additional Costs”, all of which were said to form part of the “material terms” in the plaintiff’s affirmation.

(4) Nor does the Statement of Claim mention the alleged agreed “material term” of the plaintiff’s obligation to “deliver the ordered building materials to each floor and roof of the ‘ting’ house in accordance with the Purchase Form”.

19. I agree with the defendant that the discrepancies identified above are fatal to the plaintiff’s application for summary judgment and sufficient to dispose of the application, in that:

(1) the variance between the pleaded case and the affidavit evidence means that the plaintiff has failed to verify on affidavit the facts on which his pleaded case is based, hence falling short of the mandatory requirement in Order 14, rule 2(1) of the Rules of the High Court; and

(2) further, such discrepancies cast serious doubts on the credibility of the plaintiff’s claim based on the Oral Agreement.  Indeed, such inherent discrepancies within the plaintiff’s own case would be sufficient to raise triable issues.

The defendant has raised triable issues

20. In considering the defence raised by the defendant, it is important to bear in mind that this is not the typical scenario where a defendant tries to raise some collateral oral agreement as defence to a written agreement sued on by a plaintiff.  Here, the plaintiff is himself suing on an oral agreement, the alleged terms of which are not supported by any contemporaneous record; and the defendant’s defence is to dispute what had been orally agreed. 

21. Insofar as reliance is placed by the plaintiff on the subsequent conduct of the parties, it must be noted that the manner in which the plaintiff and the defendant conducted themselves subsequent to the Oral Agreement also contradicts the plaintiff’s version of the Oral Agreement (whether on pleadings or on affidavit).

22. Whilst the plaintiff says that it was orally agreed for the defendant to make payments for “each and every ‘ting’ house”, there is no dispute that, of the 38 payments made by the defendant listed in Schedule B, not a single payment was made according to the “price” for each house (as listed in Schedule A).

23. Similarly, the objective fact was that for most of the orders for building materials placed with the plaintiff, no deposit was made, nor was the full balance paid upon delivery, thus contradicting the plaintiff’s version of the Oral Agreement.

24. Indeed, on the plaintiff’s version of the Oral Agreement, there would have been multiple breaches of the Oral Agreement by the defendant right from the start in 2008, in that:

(1) the defendant did not make payments according to each Materials List or each house;

(2) the defendant did not pay deposits for the building materials in each Materials List or each house;

(3) the defendant did not pay the full amount of the balance for the building materials in each Materials List upon delivery of that particular batch of building material; and

(4) insofar as the total contract sum is concerned, the defendant would have underpaid the plaintiff.

25. Given the above, there are clearly triable issues on the evidence as to what had been agreed between the plaintiff and the defendant orally.  The plaintiff has sought to demonstrate that the defendant’s defence is incredible when tested against the conduct of the parties subsequent to the Oral Agreement. However, given that there are unexplained features also in relation to the plaintiff’s claim, no tentative assessment of strengths should be made of the claim and the defence, and the defendant should be given his day in court. There are clearly disputes on fact relating to the Oral Agreement, which factual disputes should be tried.

Interim payment

26. The plaintiff has included an alternative application for interim payment by his summons.

27. For the same reasons stated above in relation to the Order 14 application, on the evidence before the court, the plaintiff clearly cannot satisfy the court that it will obtain judgment for a substantial sum, nor is there any reason why the court should exercise its discretion to order an interim payment.

Conclusion

28. For all the above reasons, I would allow the defendant’s appeal against the order of the Master granting summary judgment.  The judgment is set aside. 

(Submissions on the precise form of the order and costs)

29. I make an order in terms of paragraph 1 of the Notice of Appeal.

30. As to the question of costs, I think the defendant should have its costs both here and below in any event, but the plaintiff’s conduct is not such that he should pay the costs forthwith.  Accordingly, I order that the costs of this appeal and of the plaintiff’s application for summary judgment, including the hearing before the Master on 16 June 2014 (with a certificate for counsel), be to the defendant in any event, such costs to be taxed, if not agreed.