IDS CONCEPTS LTD v. ZHEJIANG FUCHUEN CO LTD

CACV 55/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 55 OF 2003

(ON APPEAL FROM DCCJ 3222/2002)

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J U D G M E N T

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Hon Woo JA (giving the judgment of the Court):

1. This is an appeal by the plaintiff from the Order of District Judge C B Chan made on 23 December 2002 by which she refused the plaintiff's application for summary judgment under Order 14 of the Rules of the District Court and granted unconditional leave to the defendant to defend, with costs in the cause of the action.

Background

2. By an agreement in writing made between the plaintiff and the defendant on 15 October 2001 ("the Agreement"), the plaintiff agreed to carry out certain interior design and fitting out works at the defendant's premises at Offices B and C, 35th Floor, United Centre, 95 Queensway, Hong Kong ("the defendant's premises") at the price of $3,561,135.80. There were variation or additional works ("the variations") totalling $839,337 that the plaintiff had allegedly performed for the defendant.

3. The plaintiff's claim against the defendant is for the sums under four invoices, totalling $240,250.69. By a Defence dated 20 June 2002 in Chinese, which is obviously a homemade pleading, the defendant mentioned that the total payments made by it by four instalments under the Agreement amounted $3,436,730, that it was most cooperative with the plaintiff in trying to resolve the disputes between the parties, that the plaintiff was guilty of delay in the performance of the works, and that regarding the balance payment of 5% of the contract sum, the parties had not signed a completion inspection report which would have been the basis for a final payment upon completion of the works. While the Defence states that the defendant does not dispute the fees in invoice No. 713/02/I06R, it disputes invoices Nos. 713/02/I07 and 713/02/I08. Moreover, it states that there were problems about the works that had not been resolved and no reasonable remedial work had been done.

4. On 30 August 2002, the plaintiff took out an Order 14 summons to apply for judgment against the defendant for the sum of $185,880.59 allegedly due and owing to the plaintiff under invoices Nos. 713/02/I05 and 713/02/I06R. The first of these two invoices was for the payment of the final payment of 5% the contract sum under various quotations, totalling $180,880.59, and the second invoice is the one referred to above, for $5,000, the amount of which the defendant did not dispute in its homemade Defence.

5. In the affirmation of Cheung Hong Man ("Cheung") affirmed on 28 September 2002, Cheung said that he was the Manager of the Investment Department of the defendant. He stated:

"2) Although the Defence [that dated 20 June 2002] was prepared by the Defendant's staff thus its format is not in conformity with a properly drafted pleadings [sic], the basis of the Defendant's defence has been clearly stated therein, that is, the Defendant disputes the quality and quantity of the Works carried out and the materials supplied by the Plaintiff. It clearly establishes tribal [sic] issues. I have been advised by the Defendant's solicitors and verily believe that it is inappropriate for the Plaintiff to apply for summary judgment in view of the said Defence."

6. A little further on, he stated:

"4) Since filing the said Defence, the Defendant has instructed Messrs Gallant Y T Ho & Co to amend the Defence. I have had several meetings with them for preparation of the Amended Defence and Counterclaim. As the matter complained of is extensive, it took them some time to prepare their draft. In any event, there is now produced and showed to me marked 'CHM-1', a copy of the draft Amended Defence and Counterclaim. I have been interpreted and explained the content of this draft and hereby confirm that the matters stated in the draft Amended Defence and Counterclaim annexed hereto are true and correct."

7. The Amended Defence and Counterclaim that was filed with leave on 14 January 2003 comprises the draft exhibited to Cheung's said affirmation and the Defence that was deleted in red. A number of defences, which also form the basis of the counterclaim, are apparent from this pleading, including

(1) unsatisfactory quality of the materials used and workmanship;

(2) inflated quantities of various items of the works had been charged, with the particulars of 18 items of inflated quantities exceeding the agreed tolerance rate of ±5%, amounting to $370,394;

(3) defects in the design of the works in that (i) the originally defective design of the location of the male toilet, and (ii) lack of storage space resulting in the failure of the defendant in letting out 8 of the 12 cubicles intended to be let out for profit; and

(4) delay in the completion of the works.

The grounds of appeal

8. The plaintiff's Notice of Appeal raises three grounds of appeal. The first is that the judge erred in law and in fact in failing to enter summary judgment on the sum of $5,000, being the amount of the invoice No. 713/02/I06R, because the defendant had admitted liability. In my view, this is a non-starter, because the defendant has already by the Amended Defence and Counterclaim raised a set off. Unless the court is satisfied that there are no triable issues raised in that pleading, there is no justification to enter judgment for $5,000 as admitted by the defendant.

9. The second ground of appeal states that the judge erred in law and in fact in failing to come to the view that the defence story is unbelievable and the third ground of appeal merely states that the judge should have either ordered summary judgment in favour of the plaintiff or only granted conditional leave to the defendant to defend.

10. In support of the second ground of appeal, the plaintiff has raised four matters, namely,

(1) The defendant's allegations have never been pleaded in the Defence.

(2) The defendant has not formally deposed to any of the particulars of the allegations in the affirmations of the defendant's managers. The said allegations were set out in a draft Amended Defence and Counterclaim which had not been filed at the time of the hearing.

(3) The said allegations being late allegations; accordingly, little weight, if at all, should be attached to the same.

(4) The judge failed to take into account the fact that prior to the issue of the writ there was no documentary evidence that the defendant had requested the plaintiff to inspect, examine, renovate or repair any such variations or defects as would have been apparent to the defendant. The judge rightly noted that the defendant's premises, upon completion of decoration work provided by the plaintiff, had been occupied by the defendant and leased out to the licensees/tenants.

(5) The judge rightly noted the defendant's issue of a commendation letter dated 28 February 2002 to the plaintiff and that the defendant's denial of its approval of the said commendation letter was weak. The learned judge should have found the defence story unbelievable.

11. All these matters had been considered by the judge. She concluded:

"5. Is this a case where the issues raised by the Defendant could be entirely discounted on the basis of the defence and counterclaim being incredible? There are issues raised related to the quantity of work and defect in work. Despite having considered the Plaintiff's submissions as regards the quality of the evidence related to these allegations and complaints, I am of the view that these complaints should not be summarily dismissed. In my view this is not a case where 'the Defendant's own case, although apparently it raises issues, which if found in his favour would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham' (per Mortimer J.A. in Manciple Ltd v. Char On Man [1995] 3 H.K.C. 459 at 466. In my view the allegations of defective work and complaints on the quantity of the work should go to trial."

12. We need to point out that it is factually wrong for counsel for the plaintiff to say that the defendant had not formally deposed to any of the particulars of the allegations in the affirmations of the defendant's managers. The various defences are set out in the draft Amended Defence and Counterclaim with sufficient particulars, the contents of which had been affirmed by Cheung (see the passage cited in para 6 above). As correctly submitted by Mr Lawrence Ng, for the defendant, this means by which the defendant showed cause is one of the ways commonly recognized (see Chinakong Manufactory Ltd v Uniden Hong Kong [1992] 1 HKC 481, at 485D-F, per Kaplan J).

13. In our view it is futile to say that the defences raised in the Amended Defence and Counterclaim are suspect or incredible on the basis that they were not exactly the same as those raised in the Defence (which was a homemade one) or that such defences were raised late. Moreover, we are not persuaded that the defendant's issue of a commendation letter dated 28 February to the plaintiff, and the fact that the defendant's denial of its approval of the said commendation letter had been described by the plaintiff as weak, can amount to a sound basis for finding that the defences now raised are unbelievable.

14. When Mr Cheung, for the plaintiff, addressed us, he heavily relied as the main basis for the plaintiff's contention that the defence is shadowy or incredible on the fact that the defendant had all along before action never put any of their alleged complaints about defects in the works or about the quantities in writing. He asked us to view this absence of written complaint against the background of the plaintiff sending 3 letters dated respectively 13 March 2002, 27 March 2002 and 3 April 2002 to the defendant enclosing a list of works for mutual inspection purposes so as to identify defects and overcharged quantities, if any, but the defendant had never replied to any of these letters. In particular, there was no reply to the letter of 3 April 2002 which stated, inter alia:

"Please arrange the final inspection to be undertaken on or before 9th April 2002 (Tuesday), if no respond is received on or before the captioned deadline, IDS [the plaintiff] will assume the above captioned project is fully completed and satisfied by you and IDS will not re-arrange the final inspection anytime thereafter."

15. Mr Ng, for the defendant, points out that the list of works enclosed in the 13 March 2002 letter only contained two columns to be filled in apparently for comments of "satisfactory" or "unsatisfactory", whereas in the letter of 27 March 2002 the enclosed list had an added column for "quantities". This enables the inference to be drawn that there must have been some discussions between the parties whereby the quantities of the works were put in issue, resulting in the column for "quantities" being added by the second letter. As to the third letter dated 3 April 2002, there was the following statement that evidenced a dispute between the parties over the final inspection, although no reason for that dispute was mentioned:

"Due to [the defendant's] Mr Giang's subsequent rejections to undertake the final inspection with your goodself and myself, IDS could not accept any further delay for the final inspection due to your Company internal problems, ..."

16. The writ was taken out by the plaintiff on 27 May 2002, and the originally homemade Defence was filed on 20 June 2002. The Defence was the first written document from the defendant containing its complaints about the works. Apart from the matters referred to in para 3 above that had been raised by the Defence, para 4 of the Defence also states:

"My company do not approve IDS's adopting this headlong way of litigation to avoid taking the responsibility that they should take for the final completion of the decoration works."

17. While this assertion does not amount to a defence as such, it is indicative that the defendant was surprised that the plaintiff took legal action against it and it disapproved of such an action. All along, prior to the Defence there had been nothing in writing from the defendant to the plaintiff to lodge its complaints about quality and quantity of the works. While this may tend to support the plaintiff's argument that the complaints now raised by the defendant is shadowy or not bona fide, it also shows that the defendant did not put its complaints in writing, even where the plaintiff's own letters bore out that there were some complaints. Looking at the matter now, in the light of all the evidence before us, in particular, with the Amended Defence and Counterclaim setting out the defences on quality and quantity with sufficient particulars, we are not persuaded that the defences are shadowy or incredible as suggested by Mr Cheung.

18. The plaintiff, and any legal advisers who intend to advise their clients on applying for summary judgment or appealing from a refusal or such an application, are well advised to bear the following judicial utterances in mind. In Skink Ltd v Comtowell Ltd [1994] 2 HKC 286, at 292E-F, Godfrey JA said:

"I ... would add that a plaintiff who starts O 14 proceedings believing that the defendant has no defence to the action should be advised, as soon as credible defence is shown, to give up trying to obtain summary judgment; to do otherwise is simply to waste time and money. In particular, it should be realized that this court will only very rarely be prepared to reverse a decision by a judge that the defendant ought to have unconditional leave to defend the action."

19. Again in Strong Base Services Ltd v Geroma Electronic Ltd & Anr [1996] 2 HKC 94, at 96A-E, Godfrey JA, in considering the function of the Court of Appeal on an appeal from a judge's order giving a defendant unconditional leave to defend under O 14, cited with approval the following judgment of Sir John Donaldson MR Lloyds Bank Ltd v Ellis-Fewster [1983] 1 WLR 559, at p 562:

"He [the judge] thought that there was a triable issue. In a case where the triability of the issue depends upon evidence as opposed to law, I would think it is very surprising situation if the Court of Appeal was prepared to disturb the judge's view. If one judge thinks there is a triable issue, it would be surprising if two or three judges think there is not."

Conclusion

20. In the circumstances, we are not satisfied that the judge was wrong in granting unconditional leave to defend. We are not persuaded that the defences raised in the Amended Defence and Counterclaim are shadowy or incredible that conditional leave to defence should be ordered. This appeal has to be dismissed with an order nisi as to costs.