LI WAN t/a WAN HING COMPANY v. HO KING HUNG t/a HUNG KEE CONSTRUCTION COMPANY

1986, No. A548

HIGH COURT

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RULING

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1. This is a curious and very confused case. The parties were both contractors working on a site at Ma On Shan in Shatin. I do not know how many sub-contractors there were, but I am assuming that the plaintiff is the number one sub-contractor and the defendant, the number two sub-contractor. The defendant's work was apparently part of the construction of caissons. The parties fell out over money. Part of the defendant's work force seems to have gone on strike by reason of non-payment of its wages, which the defendant was asserting was due in turn to non-payment or late payment by the plaintiff. This produced trouble on the site, involving at one stage the police.

2. The action started with an ex-parte application to Mayo, J. on 28th January for relief by way of injunction. He was concerned at giving such relief, ex-parte, and directed that a day's notice be given to the defendant. On the next day, the 29th, (in an order which does not in fact recite, that he heard any submissions from the defendant who, I am told, attended in person, and may or may not have understood what was going on) he made an order restraining the defendant, his servant or agents, "from entering upon, remaining upon or trespassing on the site" and further going on to direct that the defendant "do forthwith withdraw and remove from the said site all his servants or agents" until after the hearing of a summons returnable on 4th February. This was in effect mandatory relief given on an ex-parte application; a very strong thing to do. It is quite plain, I think, that Mr. Justice Mayo knew nothing about the present aspects which had been adumbrated before me today. He made his order simply to get the defendant and his men off the site, so that the plaintiff could continue with what he was saying was urgent contractual work.

3. The next effective date was 7th February when, after a brief hearing on the 4th, the adjourned summons came before Deputy Judge Ryan. By that date the matters which had given rise to the original dispute had been resolved in the sense that men had been paid: and it was common ground between the parties that the contract was at an end. What was left was the residual disputes; of course money; and whose fault it was; who was in breach; who had repudiated. The whole purpose behind the original injunction had gone.

4. When the matter came before the Deputy Judge on 7th February, a new purpose emerged before the Court. It had in fact already emerged on site. It then transpired that the real issue still separating the parties was what was called a question of lien. I will still use that as a convenient shorthand, although this was not a true lien at all; it was a right claimed by contract and not, as I see it, by possession. That was aright claimed by the plaintiff to retain the materials and the plant, which the defendant had left behind on the site when he was first ordered to vacate it.

5. It seems to me that when the matter came before the Deputy Judge on this occasion, he must have approached it rather on these lines. First, the original purpose of the injunction has now gone. But if he discharged it, there would be no restriction upon the defendant entering and removing, and this possibly might cause trouble. It might be more convenient to deal first with this lien claim. He therefore indicated that he was only prepared to discharge the injunction if an undertaking was given not to attempt to remove these goods. This was, in the light of that intimation, then given. But plainly the Judge wanted and expected this lien issue to be determined quickly. He can be forgiven for not understanding everything that was involved, because the issue had not even then been properly formulated. The amendment to the writ, and the delivery of the statement of claim which makes clear the basis on which this has been put forward, did not in fact happen until the 20th or 21st February.

6. He also seems to have directed or given leave for the filing of further evidence and such evidence was in fact filed by the plaintiff. It must follow that in the mind of the Judge, he was expecting the matter to come back before him or another Judge for resolution of this lien question. That is really the issue which has come before me this morning. It came before me in form by a Notice of Motion issued by the defendant asking for the determination of this issue pursuant to the order of Judge Ryan. That seems to me to be misconceived because he made no such order for an issue at all. Therefore I have treated this matter as a resumed consideration of the summons which I think is what Judge Ryan really must have in mind. Unhappily there is more wrong than right about the order as drawn, that was the common ground between the parties. So that by adding a provision that further consideration of the lien be adjourned generally with liberty to restore, which is in fact what I am doing by treating the matter in this way, is doing no great injustice to the order having regarded the amendments that I am being asked to make in any event.

7. Looking at the matter in that way, which is how Judge Ryan would have looked at it on 17th February had it then been properly formulated, I think it comes down to this. Is this plaintiff entitled to maintain the injunction granted by Mayo, J. restricting access to the site in order to protect his lien? This is another way of putting the question: should I give the defendant leave to withdraw his undertaking as a condition for the discharge of the order? It is two ways of expressing the same conclusion.

8. Now as far as the plaintiff is concerned what he is most anxious to preserve is his security. He wants this lien as security for the future judgment, he is confident he is going to obtain against the defendant. He asserts the defendant is in breach. He has already had to find $380,000, he says, to discharge what is truly the defendant's obligation to his workmen. He says that the damages claim on top of that is going to be a great deal more, coupled with the liquidated damages claim by his own main contractor. He wants to sit on these goods until such time as these claims are determined, until such time as the amount of his judgment is ascertained. Then he says he will seek to look to satisfaction from these goods by valuation or sale. Or, and this may be a more realistic alternative, having got judgment, by way of execution. That is the plaintiff's position.

9. The defendant, on the other hand, asserts first that he is not in breach, he is not in default under this contract at all, and secondly, that there is no real evidence that he would be unable or unwilling to satisfy the judgment that might hereafter be entered against him. These, he says are his goods and he brought them on site. They were in his possession until such time as he was ordered off the site by the original order, and it is only in that way that the plaintiff has got possession at all. This plant, he says, is essential to him in his business as a sub-contractor.

10. Perhaps in more crude terms, the issue is whether or not these goods, plant and materials should continue to remain on site gathering rust, and I have no doubt, depreciating in value, until the disputes are resolved between plaintiff, defendant and main contractor; or whether they should be released to enable the defendant to put them to more profitable use.

11. If the issue was purely one of convenience, I think I would be more naturally sympathetic to the defendant's point of view. First it seems to me an appalling waste to have this material simply sitting on site depreciating in value for some indefinite, and I suspect quite long period. Secondly, it is against a contingency, which is a speculation at the moment, as to whether the judgment is given against the defendant, which he is then unable to satisfy. Thirdly, I think that the Court should perhaps instinctively hesitate before it necessarily continues an injunction granted for purpose A in order to serve purpose B.

12. But I do not think that I can simply, as it were, duck the problems and hang my decision upon the balance of convenience, because this is one of those cases where a decision on an interlocutory matter is really going to be decisive of this issue purely as a matter of practicality. Because if I order the release of these goods or allow the withdrawal of this undertaking, that will be the end of the lien howsoever called. I think 1 have to try to grapple with the problems created by this contract and try to form a view as to the plaintiff's chances of success at the trial on this issue.

13. The first point that impresses me there is this question of possession. It seems to me that at the hearing the plaintiff is going to be in great difficulty in proving that he was in possession of these materials simply when they were brought on site. I do not think a sub-contractor bringing plant on site ipso facto surrenders its possession to his head contractor on site. It seems to me possession in this plaintiff started on one or other of two events: one is the Court's order of 29th January, and secondly, the plaintiff's election to operate Clause 12 of the contract. I very much doubt if the plaintiff's counsel will succeed in getting on its feet the proposition that business efficacy entitles or requires the Court to imply a term into this contract, that anything brought on to the site by the defendant became or fell into the possession of the plaintiff. Then a Court is going to be faced with this interesting and possibly difficult question: how far should it uphold a clause entitling a party to take possession of goods by way of security for a contingent future debt or judgment and for no other purpose? I think that the plaintiff is on serious risk of a Court coming to the conclusion, that that is not the sort of provision which the law permits, for example, because it operates indistinguishably from an unregistered Bill of Sale. I think this is a serious problem in plaintiff's path.

14. Secondly, there is the question of construction. This contract was apparently a printed form drawn by the plaintiff company to which, as far as the print goes, the defendant can I think, pray in aid the contra proferentem rule. Unfortunately, I have not got a certified translation of the contract, and particularly of the long and vital Clause 12. I have in fact two translations. One is an uncertified translation which has been put in evidence and was made by the plaintiff's solicitor. The second is an equally uncertified translation which appears in the statement of claim. The fact that this document renders itself capable of producing two such very divergent translations is not going to assist the plaintiffs at the hearing.

15. The material clause is sub-clause 5 of clause 12 which is a very long clause. It is rather like one of those which Lord Denning once said should be in red ink throughout, because it contains some savage provisions and wide powers which, on the fact of it, seem to teeter on the edge of penalty. The clause does not operate as a simple forfeiture. Nor does it operate as a simple user clause, entitling the plaintiff to retain possession of this plant until such time as the contract is completed, when it had to be handed back. What is asserted is not any right to use simply a right to retain for future security. This in itself puts in a class apart from some of the more usual but equally difficult clauses one had seen in similar contracts in the past. But so read it carries its own problems. When does it bite? When possession is taken; when the right is asserted; when the right is established; when the right is quantified; or when the quantification meets no satisfaction for the defendant? There is a whole range of possibilities. Then how is it to be measured when it does bite? By value; by sale or perhaps execution; and if it is value or sale who is to do it and how is it to be checked? I think that there are a whole string of very difficult questions which arise under this clause, in so far as I can judge it upon the basis of the two translations before me. I think that at the end of the day, there is a serious risk as far as this plaintiff is concerned, of the Court saying this simply will do. If you want to impose strict terms like this at the end of a clause, like clause 12 which gives you such very wide-ranging powers, you must bring the matter fairly and squarely home to the other contracting party, so that he knows exactly what risks he is running and what obligation he is taking on. If that approach might possibly be right then this clause has little prospect of surviving.

16. So I think on balance that the plaintiff's chances of successfully establishing a clear enforceable security right under this clause at the trial, even assuming that it succeeds against this defendant and even assuming that the plaintiff is then able to demonstrate an inability by this defendant to meet that obligation - their chances of doing that, I think, are remote. This must be the governing consideration as far as today's application is concerned, when I add to it the factors on convenience which I have already referred to. So it seems to me that the injunction originally granted should be discharged unconditionally; or putting the matter in the other way, this defendant should now have leave to withdraw the undertaking recorded in the order of 7th February. Upon exactly how that is brought about I should be happy to hear counsel because I have already been invited almost entirely to re-draw the order of 7th February.