LBM LTD v. YEARFUL CONTRACTING LTD

HCCT 35/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION

PROCEEDINGS NO. 35 OF 2007

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D E C I S I O N

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1.  This is an application for summary judgment pursuant to Order 14, Rules of High Court, by the plaintiff who had been sub-contracted by the defendant to carry out “Interior Fitting Out” works at the head office of Hong Kong Electric Ltd.  The main contractor was Paul Y.  The works were completed in 2000.

2.  There were two sub-contracts.  The first involved works at Floors 3 to 6 inclusive.  The remainder of the works came within the 2^nd sub-contract.  In both cases the final contract sum was subject to remeasurement.

3.  Broadly speaking, the plaintiff’s claim falls under two heads.  Firstly, it says the defendant’s valuation of the sum due under the contracts is deficient.  On the 1^st sub-contract it claims $4,160,616.93 whereas the defendant’s valuation is $4,038,968.38, a difference of $121,648.55.  On the 2^nd sub-contract the plaintiff claims $7,028,386.47, the defendant says $6,815,663.64, a difference of $212,722.83.

4.  This issue is referred to as the “Contract Sum” issue.  On contracts worth about $11 million completed eight years ago $334,370 remains in dispute.  

5.  The second head of dispute has been referred to as the “Variations” issue.  The plaintiff is claiming for variation works in the sum of $4,583,222.34.  The defendant is willing to pay only $170,286.40 for variations. 

6.  In addition to the two issues on the claim there has been a third issue arising out of the counterclaim.  The plaintiff submits that the counterclaim should be disregarded as disclosing no triable issue.  The court’s decision on the “Counterclaim” issue will have a potential bearing on the judgment sum, if any, in the Order 14 application.  I will deal with the three issues in reverse order.

The Law

7.  The principles governing Order 14 applications are well known.  The defendant should demonstrate triable issues which are capable of belief.  The court must not decide factual issues solely on affidavit evidence and, generally speaking, the court should be cautious before granting summary judgment unless the defence is frivolous and “moonshine”.

8.  In addition Ms Gekko Lan who appears for the plaintiff reminds the court of Ma CJHC’s comments in Toy Major Trading Co. Ltd v. Hang Shun Plastic Toys Ltd [2007] HKLRD 345 as follows :

“… In my view, the Defendant’s evidence goes nowhere near the obligation on a defendant in summary judgment proceedings to condescend to particulars.  This obligation is to ensure that where a plaintiff raises a plausible and prima facie sustainable case, a defendant can convince the court there exists a triable issue so that leave to defend is given or the application for summary judgment is dismissed.  In other words, that the Defendant is expected to show a fair probability or reasonable grounds that a bona fide defence exists.”

9.  In other words, bare denials will usually be insufficient.  The court must know sufficient detail of the defence so as to judge whether or not it is triable and believable.

10.  A further factor which may be considered within the general issue of whether or not a triable defence has been raised is the timing.  If a new defence has only emerged very late in the day, such as just before the Order 14 application, the court would be entitled to conclude that it is without merit, only raised to muddy the waters of the Order 14 application, and accordingly be rejected.

The “Counterclaim” issue

11.  By way of set-off the defendant counterclaims a total of $2,215,339.25 due because of an alleged delay in completion by the plaintiff under the 1^st sub-contract of 111 days.  (There is a further item valued at $575 which I ignore as Ms Lan conceded it in the course of submissions.)

12.  It is said that the delay caused losses under the headings of site overheads, loss of profits and head office overheads and cost of works done by other contractors.

13.  The delay counterclaim is based on the contention that the 1^st sub-contract works ought to have been completed on 11 July 2000 (the completion date set by the main contract between the defendant and Paul Y) whereas they were actually completed (as agreed by both plaintiff and defendant) on 30 October 2000.

14.  For the following reasons I have concluded that the counterclaim is bound to fail and should be disregarded in the context of this application :

(1)  The amended defence does not plead any completion date for the 1^st sub-contract.  This is not surprising as there isn’t one.

(2)  Neither is there any plea that the terms of the main contract had been, either expressly or impliedly, incorporated into the sub-contract.  Again, this is not surprising because there is no evidence that they had been.  Thus, any claim that completion on 30 October 2000 was in breach of the 1^st sub-contract is sure to fail.

(3)  Moreover, the completion date of 11 July 2000 in the main contract is said to be “for all fitting out works except 3/F to 6/F”, the very floors which are the subject matter of the 1^st sub-contract.

(4)  There is no contemporaneous complaint about delay.  Correspondence between the parties at the material time does not refer to either any delay issue or any specific completion date.

(5)  The defendant has not produced any evidence suggesting it has suffered any actual loss as a result of the alleged delay by the plaintiff.  No evidence has been forthcoming that the main contract was delayed as a result of the plaintiff’s delay thus causing a loss to the defendant.

(6)  The defendant has not particularised on what basis it is suggested that the cost of engaging other contractors (a claim of $114,686) stemmed from delay attributable to the plaintiff.

(7)  The overall picture is of a delay claim being mounted as an afterthought in an attempt to reduce the liability to the plaintiff.  I ignore any reliance placed on evidence contained in the 2^nd affirmation of Wong Shu Kuen dated 20 December 2008 as being far too late.  The entire counterclaim lacks bona fides.

The Contract Sum issue

15.  Plainly there is a difference between the calculations done by each party on the final sums due under the two contracts.  It is regrettable that no efforts have been made to resolve the difference as it represents approximately a mere 3% of the whole.

16.  The question is, is it sufficient for the defence to say that simply because there is a dispute as to the final figure there is triable issue?  The defence submit that they have done more than “merely say that there is a dispute”.  They say they have produced documents and identified documents which make clear the areas of dispute item by item.

17.  The plaintiff’s submission however is that the mere production of a different set of figures is not good enough.  However detailed the arithmetic may be, if it does not condescend to particulars as to why the plaintiff’s figures are wrong, it does not constitute a bona fide defence.

18.  The plaintiff goes on to say that it has demonstrated that its figures are based on as-built drawings which, in the absence of contradictory evidence, are unassailable.

19.  In my judgment the plaintiff has put up an impressive argument in its attack on the bona fides of the defence in so far as it relates to the “Contract Sum” issue.  However, bearing in mind the high threshold to be met in Order 14 applications and bearing in mind that the matter will proceed to trial in any event (because of my decision on the “Variations” issue, below), I have come to the conclusion that summary judgment for the contract sum of $334,370 should not be made.  However, as will be seen from my order (below), leave to defend will be conditional.

The Variations issue

20.  The difference between the parties on this issue is substantial.  The plaintiff claims $4,583,222.34, the defendant admits $170,286.40.

21.  A key difference between this issue and the “Contract Sum” issue is that the defendant’s opposition to the plaintiff’s claim is based on more than a mere dispute as to how items should be added up.  The defendant claims that some variation work was never authorised and some was not done in proper compliance with the contractual provisions governing variation works.  They also complain of a lack of documentation in support of the variations claim such that, even if it was properly done, they cannot assess the correctness of the quantum.  Whilst it is likely that, in due course at trial, the plaintiff will be able to establish an entitlement under this heading it is clearly premature to say what that entitlement presently is.  Although the issue is not suitable for determination of the whole amount under Order 14 proceedings, it is, in my judgment, a suitable case for leave to defend being conditional on a sum being paid into court.  In my judgment an appropriate sum for payment in is the whole of the “contract sum” claim plus approximately half of the “variations” claim.

Order

22.  The consequence of the above decision is that :

(a)  there be judgment for the plaintiff in the sum of $1,210,633.34 plus interest at prime plus 1% from 2 November 2006.

(b)  Leave to the defendant to defend as to the residue of the amount claimed in the amended Statement of Claim conditional upon a sum of HK$2.5 million being paid into court within 21 days from the date of this order.  If the said sum is not paid in in accordance with this order, the plaintiff may enter judgment for the full amount of the residue of the claim plus interest of 1% over prime from 2 November 2006.

(c)  Costs of and occasioned by this application shall be in the cause.