HEERIM ARCHITECTS & ENGINEERS CO LTD v. TOM IP & PARTNERS, ARCHITECTS, ENGINEERS & DEVELOPMENT CONSULTANTS LTD

HCCT73/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO.73 OF 2002

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D E C I S I O N

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1. Both parties to these summonses are firms of architects. The plaintiff is a Korean firm and the defendant a Hong Kong Firm.

2. In January 2001 they entered into an agreement which formed the basis of a joint entry into a competition, organized by the Hong Kong Housing Authority, for a design for a housing project in Shatin. If their entry was successful the agreement also provided for collaboration on the architectural works which would follow.

3. On 29 March 2001 it was announced that their entry had won. As agreed the plaintiff was paid 70% of the prize money. Thereafter however the joint venture encountered difficulties and, in fact, the plaintiff, in spite of its willingness to do so, did no more work under the contract.

4. On 24 September 2001 the defendant terminated the contract. The plaintiff then issued proceedings for wrongful termination claiming, inter alia, firstly $1,338,000 being 50% of the architectural fees which had been paid to the defendant prior to termination and secondly, damages of over $22 million being 50% of the fees it would have earned had they remained a partner in the Shatin housing project.

5. On 22 November 2002 the defendant issued a summons for security for costs, the plaintiff being a foreign plaintiff. This was followed, on 6 January 2003, by the plaintiff's summonses for interlocutory judgment under Order 14 and an interim payment under Order 29.

Order 14 and Order 29

6. In the circumstances of this case, these two summonses can be taken together. Although Mr Thomas Lee, for the plaintiff, argues to the contrary, I take the view that if unconditional leave to defend is granted, then the interim payment application will fail. Alternatively, if leave to defend is granted subject to a condition of a payment in, the payment in would, on the facts of this case, serve the same purpose as an interim payment.

7. The plaintiff's primary case is that the defendant's purported termination of the contract was not permitted within its terms. The defendant relied on the "Suspension and Termination" clause which provides that :

"If services are terminated for any reason, [P] shall be compensated for all basic and additional services performed to the date of notice of termination based on the percentage of completion to date along with any reimbursable expenses."

8. The plaintiff claims damages for the defendant's repudiatory breach, namely, the act of wrongful termination.

9. In my judgment, on its primary case the plaintiff has fallen well short of the test applicable in Order 14 applications. Their case depends on the defendant having no right to terminate. It seems to me, at least arguable, that there was a right to terminate. The existence of such a right will be a matter for argument at trial and the answer may depend, in part, on the conduct of the parties prior to termination. It is at least arguable that the clause in question, expressly provides for both a right to terminate and the contractual remedy following termination. Its validity will also have to be considered in the context of the type of contract of which it is a term, namely a joint venture of co-operation between two professional firms in relation to a specific housing scheme.

10. The plaintiff's secondary claim is for a specific sum, $1,338,000. This represents 50% of a sum which the defendant admits it received, in August 2001, from the Hong Kong Housing Authority for work done under the project. The plaintiff submits it is unarguable that it is entitled to the 50% share of fees received prior to termination.

11. The defendant makes three points. First, the payment relates to work done between April and July 2001. Secondly, the plaintiff performed no work under their agreement after 1 April 2001. Thirdly, the work for which the payment was made relates to work which falls outside the scope of their agreement.

12. This secondary claim by the plaintiff is undoubtedly stronger than its primary claim. However, to resolve it now would require a trial by affirmation. What work did or did not come within the scope of the agreement is a matter of evidence. It would be premature to decide at this stage that, unarguably, the plaintiff either did work for which it has not been paid or is entitled under the contract to 50% of fees actually paid or both.

13. In short, the application of the clearly defined Order 14 principles results in the plaintiff's applications failing. Further detailed analysis of the legal effect and consequences of the particular clause, the meaning of the scope of the works, the consequences of the defendant's unilateral act of termination and the evidence relating to the services for which the $1,338,000 was paid, would be inappropriate. Such further detail will be carefully considered at trial should the parties be unable to settle their difference prior thereto.

14. On the plaintiff's summons for interlocutory judgment with damages to be assessed and for an interim payment in the sum of $1,338,000 I make an order that the defendant be granted unconditional leave to defend. I make a costs order nisi that costs be in the cause.

Security for costs

15. Normally, a foreign plaintiff would be ordered to provide security for costs. Whether or not the normal order is in fact made is within the court's discretion.

16. Mr Lee submits that there are a number of reasons for exercising the discretion in favour of no order being made, namely :

(a) The plaintiff has, if not an unarguable case, at least a strong case.

(b) The plaintiff would have had assets in Hong Kong but for the defendant's wrongful termination of their agreement.

(c) The plaintiff is a large and respected firm of architects in Korea. There is no realistic risk that it would be either unwilling or unable to pay the costs of the proceedings should it be unsuccessful.

17. Mr Adrian Bell, for the defendant, argues that there is no reason not to make the usual order. He relies on :

(a) The plaintiff has no assets in Hong Kong.

(b) In view of the plaintiff's resources in Korea it would be no hardship for them to pay some security.

(c) There is now no love lost between the parties. Their present sense of grievance would be exacerbated should they lose the action to the possible extent that they might delay or even refuse to comply with any rulings against them.

(d) The merits of the case are, in fact, in the defendant's favour.

(e) There is more risk to the defendant in not making the order than there is prejudice to plaintiff in making it.

18. At the end of the day, it is a balancing exercise. In my judgment the arguments in favour of making the usual order outweigh those for not making it.

19. The next question which thus arises, is how much? The defendant seeks $600,000 and have produced as estimated bill for the whole action, including trial, in the sum of about $1 million. This claim therefore sensibly recognizes a degree of taxation.

20. I think that the order for security at this stage should only be up to the time of setting down for trial. Attempts to reach a compromise will hopefully continue. If it becomes necessary to go to trial the defendant may consider a second application for security. At this stage I order a payment into court of $300,000 as security for the defendant's costs. On this summons I make a costs order nisi in the defendant's favour.