ETERNITY CONTRACTING & ENGINEERING CO LTD v. THE JARDINE ENGINEERING CORPORATION, LTD

HCCT 33/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 33 OF 2007

____________

____________

_____________

DECISION
_____________

1.  There are three summonses. Two of them are issued by the plaintiff and the third one issued by the defendant. The first one is a Case Management Summons. The second one is for leave to file the reply out of time. The third is to strike out the plaintiff’s claim.

The pleadings

2.  The plaintiff claims in the statement of claim that it had an agreement which is contained in or evidenced by its quotations and invoices and the defendant’s Instruction to Sub-contractor of ref. EMSCD/KFL/J62F210066 to the plaintiff and dated 12 September 2003 (“the Instruction to Sub-contractor”). The agreement was for the supply of labour and materials by the plaintiff to carry out the instructed P&D Installation Work for the defendant at City One, Ma On Shan, Shek Mun and Wu Kai Sha stations in relation to the KCRC East Rail Extension Contract Nos TCC 200 & TCC 300.

3.  The plaintiff pleaded that all quotations and invoices had been served on the defendant on various dates.  The particulars of invoices show 15 invoices for a total value of HK$4,630,350.80.  The plaintiff also pleaded that it achieved practical completion of the agreement in December 2004.

4.  The plaintiff further pleaded that the defendant had paid HK$258,170 to the plaintiff’s workers on or about 6 December 2004 on behalf of the plaintiff to settle the workers’ claims for wages under a Labour Department file no. LR 36-2004-2840 as evidenced by a letter dated 6 December 2004 from the defendant to the plaintiff.  The defendant said in the letter that the sum of HK$258,170 would be deducted from any payment due from the defendant to the plaintiff under contracts nos TCC-200 and TCC-300.

5.  The plaintiff then claims the net sum of HK$4,372,180.80 from the defendant.

6.  The defendant admitted in its defence that it had issued the Instruction to Sub-contractor to the plaintiff, but it had only received the invoices from the plaintiff in or about mid-August 2005.

7.  The defendant denied that the Instruction to Sub-contractor had any contractual effect or that there was an agreement between the plaintiff and the defendant or that the defendant had any obligation to pay the plaintiff.

8.  The defendant further pleaded that the Instruction to Sub-contractor had stated that no money was payable unless a Work Order had been issued by the defendant and in fact no Work Order had been issued.

9.  The provision in the Instruction to Sub-contractor on the issuance of the Work Order is as follows:

“Please Note:

This ITS [Instruction to Subcontractor] must be confirmed by a WORK ORDER.  Under no circumstances shall any money be paid without issue of a WO.”

10.  The effect of the Work Order is to confirm the Instruction to Sub-contractor.  Without the Work Order, the Instruction to Sub-contractor is not confirmed and work cannot be commenced on pain of no payment.

11.  The defendant then put the plaintiff to strict proof of the plaintiff’s involvement in the works or its practical completion.

12.  The defendant admitted that it had issued to the plaintiff the letter dated 6 December 2004 in respect of the plaintiff’s failure to pay wages, but did not admit that the workers were employed by the plaintiff or that they had anything to do with the defendant’s works at the KCRC site or elsewhere.

13.  The defendant pleaded that it paid the sum of HK$258,170 to the workers to defuse a protest by persons at the KCRC site in which the defendant was working so as to avoid disruption to its works.

The chronology

14.  The following is a chronology taken from the skeleton submissions of Mr Niehorster, counsel for the defendant with some additions:

Event	Date
Letter of Instruction to Sub-Contractor	12 September 2003
Period in relation to which the plaintiff claims for labour wages	18 September 2003 to 30 November 2004
Statement of claim	23 June 2006
Defence	2 August 2006
Defendant indicated consent for Reply to be filed out of time	1 September 2006
Notice of Change of plaintiff’s solicitors from Leung and Wan to Huen & Partners	10 October 2006
Consent Summons for exchange of list of documents 21 days thereafter (i.e. 8 December 2006), inspection 14 days later (22 December 2006) and witness statements 60 days after exchange of lists (6 February 2007)	17 November 2006
Plaintiff’s List of Documents	11 December 2006
Defendant’s List of Documents	14 December 2006
Plaintiff’s Supplemental List of Documents	11 January 2007
Defendant suggested to arrange a time to exchange witness statements	12 February 2007
Plaintiff’s Second Supplemental List of Documents	15 February 2007
Transfer to Construction and Arbitration List taken out by the defendant’s solicitors	22 March 2007
Notice of Change of Address for Service of Huen & Partners	7 March 2008
Plaintiff’s Notice of Intention to Proceed	15 July 2008
Defendant’s Notice of Change of Solicitors from Tanner De Witt to JSM	15 August 2008
Notice of Change of plaintiff’s solicitors under HCA 1350/2006 from Huen & Partners to Cheung & Liu	28 October 2011
Notice of Change of plaintiff’s solicitors under HCCT 33/2007 from Huen & Partners to Cheung & Liu	1 November 2011
Plaintiff’s Notice of Intention to Proceed	16 November 2011
Notice of Change of defendant’s solicitors from JSM to Holman Fenwick Willan	30 November 2011
Summons for leave to file and serve Reply	21 August 2012
Case Management Summons	21 August 2012
Defendant’s summons to strike out the plaintiff’s claim	17 September 2012
Plaintiff’s Third Supplemental List of Documents	19 September 2012
plaintiff’s summons to withdraw summons filed on 21 August 2012 for leave to file the reply and for leave to file and serve a revised reply	15 November 2012

The striking out summons

15.  The defendant applied to strike out the claim on the ground that the plaintiff had been guilty of inordinate and inexcusable delay in proceeding with this action to the prejudice of the defendant or it was otherwise an abuse of the process of the court. 

16.  Both parties refer to Wing Fai Construction Co Ltd (in liquidation) v Yip Kwong Robert [2012] 1 HKLRD 589 at §§ 23-29, 31-34, 47 and 64-80.  The defendant says that there was inordinate and inexcusable delay on the part of the plaintiff in the conduct of this action.  The plaintiff accepts that there has been inordinate delay.  Its excuse is financial difficulty and that it only had funds in late 2011 to engage its solicitors to continue with the action.  However, Mr Chan, counsel for the plaintiff is not arguing that the delay is excusable.

17.  Mr Niehorster submitted for the defendant that the dilatory conduct of the plaintiff is an abuse of processes in itself.  Mr Chan disagreed.

18.  I agree with Mr Chan that the delay alone would not constitute abuse.  Furthermore, the defendant also has not taken any step in the action since 22 March 2007.  Since the CJR, which took effect on 2 April 2009, the defendant should not have adopted such passive attitude (see Wing Fai at § 75(2) to (6)).

19.  Mr Niehorster then complained that the statement of claim did not set out some essential terms of the agreement like agreed hourly or daily rate of workers and payment periods.  However, these are matters that the defendant could have asked for by requesting for further and better particulars or interrogatory.

20.  Mr Niehorster then complained about the insufficiency of documentation disclosed by the plaintiff.  He in oral submissions in particular referred to the absence of any bank statement from the plaintiff to show how the plaintiff had paid its workers.  But this is a matter of specific discovery that the defendant could and should have conducted before it proposed to exchange witness statements on 12 March 2007.

21.  The defendant then submitted that the plaintiff’s delay has caused prejudice to the defendant.

22.  The defendant has already prepared witness statements by Mr Hung Sui Chi, Herbert, a Quantity Surveyor and Mr Fong Sai Keung, an Estimating Manager.  The defendant’s solicitors had suggested to the plaintiff’s solicitors on 12 March 2007 to arrange a time for exchange of witness statements.  Hence, the defendant has not been prejudiced on the collection of evidence.

23.  The defendant then submitted that it is prejudiced in that it cannot collect evidence on an oral agreement pleaded by the plaintiff in the draft reply.  If that should be the case, that would only operate against the pleading of the oral agreement in the reply, not to strike out the claim.

24.  Since the defendant cannot identify any prejudice, I would dismiss its application to strike out.

The draft reply

25.  Despite the defendant’s consent given on 1 September 2006 for the reply to be filed out of time, the plaintiff did not file it thereafter. It then issued a summons on 21 August 2012 for leave to file it.  It issued another summons on 15 November 2012 to withdraw the previous summons and for leave to file a revised draft reply.

26.  Regarding the defence point that the Instruction to Sub-contractor had stated that no money was payable unless a Work Order was issued by the defendant and the defendant in fact had not issued any Work Order, the plaintiff pleaded in §§ 5 and 6 of the draft reply as follows:

“5. Pursuant to the oral agreement made between Mr. Chung Tak Leung of the Plaintiff and Mr. Leung Kam Fai of the Defendant on or about 12^th September 2003 (‘Oral Agreement’), it was expressly and/or otherwise impliedly agreed that in consideration of the Plaintiff carrying out the works as stipulated under the Instructions to Subcontractor, the Defendant shall issue Work Orders upon the Plaintiff’s submission of payment applications. In fact, the Defendant undertakes to issue the Work Orders when the instructed works had been completed by the Plaintiff.

6. Wrongfully and in breach of the Oral Agreement, the Defendant has failed and/or refused to issue any Work Order or pay any part or at all of the balance of HK$4,372,180.80 despite repeated requests and demands.”

27.  The effect of these two paragraphs is to vary the terms of the Instruction to Sub-contractor so that the instruction would take effect without the need for confirmation by the Work Order and the Work Order ceased to be the pre-requisite for commencement of work. 

28.  Mr Chung Tak Leung of the plaintiff also said in §§ 4, 5 and 8 of his affirmation filed on 28 September 2012 in support of the application as follows:

“4. By a series of negotiation between I and Mr. Leung Kam Fai as the representatives of the Plaintiff and Defendant respectively, the Plaintiff subsequently entered into an agreement with the Defendant (‘the Agreement’), both oral and in writing as evidenced by the Defendant’s Instructions to Sub-contractor Ref. EMSCD/KFL/J62F210066 to the Plaintiff on 12^th September 2003 … of which the Plaintiff agreed to supply labour and materials to carry out the instructed P & D Installation Work (‘the Work’) for the Defendant … in consideration of the Defendant’s payment in such sum payable under the Agreement.

5. I was induced by Mr. Leung on behalf of the Defendant that so long as the Plaintiff carrying out the Work under the Agreement, the Defendant shall issue the Work Orders, as stated in the Defendant’s Instructions to Subcontractor, upon the Plaintiff’s submission of payment applications. In fact, all along the Defendant undertook to issue the Work Orders when the instructed works had been completed by the Plaintiff from time to time.

…

8. In the said period between 9^th October 2003 and 9^th December 2004, I approached Mr. Leung of the Defendant on numerous occasions to demand for the Outstanding Sum.  Mr. Leung repeatedly came up with the excuse by alleging that the failure to issue the Work Orders was due to the Defendant’s internal arrangement of which its officer(s) at the senior management level interrupted in between and refused to sign the same for expediting payment to the Plaintiff from the account office. …”

29.  The effect of the Work Order as stipulated in the Instruction to Sub-contractor was entirely changed by the plaintiff’s alleged oral agreement.  As a result of the alleged oral variation, the Work Order, instead of having to be issued before commencement of works, should be issued at the completion of works and submission of payment application. Payment on the application is supposed to follow the issuance of the Work Order.

30.  The effect of the oral agreement is to vary the defendant’s liability to pay as stated in the Instruction to Sub-contractor.  By the oral agreement, the plaintiff is not relying on the Instruction to Sub-contractor as pleaded in the statement of claim, but a different instruction to sub-contractor with the stipulation on the issuance of the Work Order varied by the oral agreement and the defendant’s liability to pay also varied accordingly.

31.  The draft reply further pleaded that the Work Order was only for the defendant’s internal use in recording payment arranged to payees including the plaintiff.  The plaintiff further relied on the Control of Exception Clauses Ordinance, Cap 71 in answer to the exclusion clause in the Instruction to Sub-contractor that provided that no money was payable unless a Work Order had been issued by the defendant.

32.  The plaintiff then pleaded alternative claims under the Supply of Services (Implied Terms) Ordinance, Cap 457 and quantum meruit in §§8.3 and 8.4 as follows:

“8.3 there was an implied term of payment under the Instructions to the Subcontractor of which the Defendant shall have an obligation to pay a reasonable charge plus reasonable profit to the Plaintiff. The Plaintiff will rely on the Supply of Services (Implied Terms) Ordinance (Cap. 457) to its full terms and effect; and

8.4 Further or alternatively, if, which is expressly denied, the Plaintiff was unable to receive payment under the Defendant’s Instructions to Subcontractor or there is no contract formed at all between the parties, the Plaintiff was entitled to a reasonable sum plus reasonable profit on its works on quantum meruit basis.

PARTICULARS ON QUANTUM MERUIT

Particulars have been set out in Annexure hereof.

(There are set out in the annexure particulars of workers’ wages and sundry expenses/materials.)”

The defendant’s grounds of opposition to the filing of the reply

33.  The defendant mainly objected to the pleading of the oral agreement and the alternative claims for payment by way of an implied term under the Supply of Services (Implied Terms) Ordinance and for quantum meruit. It submitted that, subject to the question of the limitation period which expired in December 2010, these claims should be pleaded by way of amendments to the statement of claim and not in the reply.

34.  Furthermore, regarding the oral agreement allegedly made between Mr Chung Tak Leung of the plaintiff and Mr Leung Kam Fai of the defendant, the defendant said that Mr Leung and the defendant had fallen out sometime between 2008 and 31 May 2010 when Mr Leung’s company Winice Corporation Limited sued the defendant’s wholly owned subsidiary T J Engineering Service Ltd in HCCT 30/2010.

35.  Mr Niehorster submitted that if this oral agreement should have been pleaded in February or March 2007 in the statement of claim when the defendant was ready to exchange witness statements, the defendant could have approached and taken a statement from Mr Leung.  But the defendant was no longer in a position to do so because the defendant and Mr Leung had fallen out.

36.  Just on this point, the plaintiff has indicated that it will be calling Mr Leung to testify for it.  If I should allow this agreement to be pleaded in the reply and if the defendant should consider it necessary to see what Mr Leung has to say about it, the defendant may approach Mr Leung at any time.  Mr Leung will also be available for cross-examination by the defendant. I do not think the fact that the defendant had fallen out with Mr Leung should be a bar for the oral agreement to be pleaded.

37.  Regarding whether the oral agreement should be pleaded in the reply, Mr Chan submitted that the plaintiff only intended to rely on the oral agreement as a response to the defendant’s point that a Work Order was necessary.  It would not to be relied on as the basis of a claim.  The plaintiff’s case has always been that the defendant is liable to pay the plaintiff for the work done irrespective of whether the defendant has issued a Work Order.

38.  I, however, think that this is an oversimplification of the difference in nature between the plaintiff’s claim based on the Instruction to Sub-contractor as pleaded in the statement of claim and its claim based on the Instruction to Sub-contractor as varied by the alleged oral agreement.  With the alleged oral variation, the Instruction to Sub-contractor was effective without the need for confirmation by a Work Order.  The stipulation on Work Order in the instruction as quoted above was deleted and rewritten by the oral agreement.  After the deletion and rewriting of this stipulation, the Instruction to Sub-contractor was a different one with a different contractual effect.  If the plaintiff would like to rely on the instruction as varied by the oral agreement either as the claim to replace the original claim or as an alternative to the original claim, the variation should be pleaded in the statement of claim.

39.  Having considered the submissions from both sides on the oral agreement and the two alternative claims under the Supply of Services (Implied Terms) Ordinance and quantum meruit, I take the view that these are the bases of claims and should be pleaded in the statement of claim.  Mr Chan, in fact, did not raise much argument against the proposition that the two alternative claims should be pleaded in the statement of claim.  His main argument was on the oral agreement, but I disagree with him.

40.  If the Instruction to Sub-contractor as varied by the oral agreement and the two alternative claims should be pleaded in the statement of claim, the defendant would be able to plead to them as of right in the defence. If these claims should be allowed to go in the reply, the defendant would have to apply for leave to file a rejoinder to deal with them.  That is not right.

41.  I therefore give leave to the plaintiff to file the reply within 14 days from today but without §§ 5, 6, 8.3 and 8.4, the particulars under §8.4 and the annexure thereto.

Case Management Summons

42.  Mr Chan for the plaintiff, in contemplation of making the alternative claims under the Supply of Services (Implied Terms) Ordinance and quantum meruit in the reply, has proposed comprehensive directions for expert evidence.  Now that I have refused leave for these claims to be made in the reply, I would not give any direction on expert evidence.  I would also adjourn the Case Management Summons to 24th August 2015 at 9:30a.m. for the parties can consider how to proceed further.

Costs

43.  I have advised the parties that save for the Case Management Summons, I would order costs to follow the event.  Since the defendant has lost the summons to strike out, I would make a costs order nisi that the defendant do pay the plaintiff the costs of this summons to be taxed and paid forthwith.

44.  Regarding the costs of the two summonses issued by the plaintiff for filing of the reply, they provided for costs to the defendant. The plaintiff has also lost the arguments on the oral agreement and the two alternative claims.  I therefore make a costs order nisi that the plaintiff do pay the defendant the costs of these two summonses to be taxed and paid forthwith.

45.  On apportionment, I consider that 60% of the time for the hearing was used for the striking out summons and 40% for the filing of the reply.

46.  Since the Case Management Summons has been adjourned, no costs order need be made on it.