DAH SENG DECORATION PROPERTY AGENCY LTD. v. SZE KIE SET AND ANOTHER

HCA 15405/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15405 OF 1998

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RULING ON INTEREST AND COSTS

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1. On 3 October 2000, the 6th day of the trial in this action, the 1st Defendant submitted to judgment in the sum of $95,520.00. Upon the 1st Defendant so submitting, the Plaintiff elected not to pursue its action further against the 1st Defendant and to discontinue its action against the 2nd Defendant.

2. The Court accordingly gave judgment for the Plaintiff against the 1st Defendant in the sum of $95,520.00 and dismissed the Plaintiff's claim against the 2nd Defendant. The Defendants elected to discontinue their counterclaim against the Plaintiff. The counterclaim was accordingly dismissed.

3. After hearing argument I reserved my ruling as to interest and costs.

4. The event that immediately preceded and precipitated these developments was an application by the Plaintiff to reamend its Statement of Claim, expressly to allege an implied term that a 40% interim payment in the sum of $95,520.00 provided for under the contract on which the Plaintiff relied had become payable and that the Defendants had failed to pay the sum in breach of contract. In making this application Mr Chan, for the Plaintiff, argued that the amendments were purely for the purpose of clarification and did not amount to a new claim. On the basis that the Court would have been entitled to give judgment for this sum on the Amended Statement of Claim even before its reamendment if it had not been satisfied that the Plaintiff had made out its case for the entire sum due under the contract and in the interests of justice I allowed the amendment sought by the Plaintiff.

5. In so far as the action against the 1st Defendant is concerned the submission of Mr Chan is that, since judgment was given in favour of the Plaintiff, costs should, as is the usual case, follow the event.

6. Miss Lan on behalf of the 1st Defendant alleges that the claim for $95,520.00 was a new claim only made when the Plaintiff obtained leave to reamend its Statement of Claim on 3 October 2000. She argues that the 1st Defendant had immediately submitted to judgment as soon as the new claim was made and that what happened was that the Plaintiff had then discontinued its original claim for the full contractual sum ($174,800.00). She argues that in such circumstances it was the Defendants who were the winning party; it was the Plaintiff's claim which had resulted in a 5 day trial in the High Court before the reamendment; the Plaintiff should accordingly be ordered to pay the 1st Defendant's costs of trial up to the time of the reamendment.

7. The first and principal issue for the Court to decide is whether on the pleadings as they stood before reamendment the Court would have been entitled, if it was not satisfied that the Plaintiff had established that it was entitled to the full contractual price, to give judgment for the Plaintiff in the sum of $95,520.00 being an interim payment which had become payable by the 1st Defendant.

8. I am satisfied that it could.

9. The Plaintiff's claim was based on a decoration contract which was partially oral and partially in writing. That part of the contract that was in writing was contained in a formal contractual document dated 9 April 1998. It expressly provided for the payment of an initial deposit representing 30% of the contract price (which the parties agree was paid), further interim payments of 40% and 20%, the latter to be paid when the contract was nearly completed, followed by the balance of 10% on completion of the works.

10. In its Statement of Claim, the Plaintiff expressly alleged that after it had substantially completed the work it made a demand for the 2nd instalment of 40% which the 1st Defendant refused. The 1st Defendant had refused to sign a draft amended agreement which reflected the deduction of certain marble works. The Defendants had subsequently locked the premises so the Plaintiff's workers could not complete the work. The Plaintiff alleged that these actions of the Defendants (which included the refusal to pay the interim payment of 40%) amounted to a repudiation of the contract by the Defendants enabling them to claim the whole contract price.

11. This therefore was a claim for the whole contract price. The Plaintiff was alleging that circumstances had arisen whereby it was entitled not only to the 40% interim payment which had been demanded and the 1st Defendant had refused to pay, but also to the full contractual price. I am satisfied that if the Court had found that the Plaintiff was justified in making a demand for the interim payment but was not entitled to the full contractual price, it could have given judgment for the sum representing the 40% interim payment.

12. In their defence the Defendants expressly admitted that the 1st Defendant had refused to pay the 40% interim payment. They denied however that the Defendants had repudiated the contract and alleged that it was the Plaintiff who had repudiated the contract which repudiation they had accepted. They alleged that the only basis upon which the Plaintiff was entitled to remuneration was on a quantum meruit basis.

13. It was on the basis of their assessment of the value of a quantum meruit claim that they made a payment into Court of $56,871.00 on 11 November 1998. That payment-in falls short of the judgment sum now entered against the 1st Defendant.

14. That payment in did not take into account the possibility that the Court might conclude that the 40% interim payment was payable. This was despite the fact that in his witness statement of 13 July 1999 the 1st Defendant had admitted that the payment of the interim instalments "would depend on the progress of the work and he (i.e. Mr Chu of the Plaintiff) would request payment when necessary" (para. 22) and his admission (in para. 29) that in about early May 1998, the Plaintiff had requested the 40% instalment and that "since most of the works were already in progress I was willing and ready to make payments as agreed". (My emphasis)

15. I have borne in mind that Mr Chan for the Plaintiff in presenting the Plaintiff's case said that the Plaintiff alleged that this was an "entire contract". The allegation that this was an entire contract would not be inconsistent with a finding by the Court that the Plaintiff was entitled to an interim payment. This was made clear in the judgment of Denning LJ in Hoenig v. Isaacs 1952 2 All ER 176.

"It is, of course, always open to the parties by express words to make entire performance a condition precedent. A familiar instance is when the contract provides for progress payments to be made as the work proceeds, but for retention money to be held until completion. Then entire performance is usually a condition precedent to payment of the retention money, but not, of course, to the progress payments. The contractor is entitled to payment pro rata as the work proceeds, less a deduction for retention money. But he is not entitled to the retention money until the work is entirely finished, without defects or omission."

16. I have also borne in mind that in the afternoon of 27 September, the 3rd day of trial after the Plaintiff had closed its case Miss Lan sought clarification as to whether the Plaintiff sought to rely on quantum meruit as a basis for its claim. In the course of a lengthy exchange Mr Chan said that the Plaintiff did not rely upon quantum meruit and said words to the effect that the Plaintiff's case was basically "all or nothing". It must be remembered however that those words were uttered in the context of an enquiry as to whether the Plaintiff was seeking to base its claim on quantum meruit. Even if Mr Chan's words at that stage may have led the defence to misapprehend that the Plaintiff's case was "all or nothing", Mr Chan made clear the following day that that was not the case. Although he did not refer to any right of the Plaintiff to interim payments what he said did not exclude it. After giving the matter considerable thought I find that the normal principles as to costs should apply. I order that the 1st Defendant do pay the Plaintiff's costs to be taxed if not agreed.

17. The Plaintiff discontinued its action against the 2nd Defendant, the wife of the 1st Defendant, on the basis of the 1st Defendant's willingness to submit to judgment. I am satisfied that notwithstanding the fact that it was only the 1st Defendant who signed the written contract it was reasonable and prudent for the Plaintiff to have sued both Defendants. They were co-owners of the flat to be decorated. The 2nd Defendant had visited the Plaintiff's premises on a number of occasions and participated in the selection of the design and materials for the work. Indeed, in the defence she admitted that she was party to the agreement. In the interests of simplicity and to avoid unnecessary taxation of costs, I order that the 2nd Defendant's costs be paid by the 1st Defendant.

18. I order that the Plaintiff's costs relating to the counterclaim be paid by the Defendants. For the assistance of the taxing Master the parties agree that no part of the trial was occupied with evidence or submissions relating to the counterclaim.

19. The 40% interim payment was demanded on 6 May 1998. Although it was incorrectly quantified at that stage, it is implicit in the submission of the 1st Defendant to judgment that the sum representing 40% of the contract price was then due. By his refusal to pay the Plaintiff has been kept out of the sum to which he was entitled from that day.

20. Accordingly I order that the 1st Defendant do pay interest on the sum of $95,520.00 from 6 May 1998 until today at 11.5% per annum and thereafter at judgment rate until payment.

21. I order that the sum of HK$56,871.00 paid into court on 11 November 1998 be paid out to the Plaintiff.

HCSD 27/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 27 OF 2000

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D E C I S I O N

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22. This is an application to set aside a statutory demand dated 20 May 2000. It was served on the Applicant debtor, Madam Wong Wai Lin Lana, by advertisement in two newspapers on 2 June 2000. The debt in the statutory demand arose out of a consent order dated 28 February 2000 made in respect of costs that should be paid by the Applicant to the three Respondents in the consolidated proceedings being High Court Action No. A8731 of 1993 and High Court Action No. A11746 of 1996 ("the consolidated action"). The amount of the costs the Applicant was ordered to pay was HK$650,000.00. There were two other items in the debt set out in the statutory demand being default interests and further default interests. The total sum as claimed in the statutory demand was HK$660,889.72.

23. The application to set aside the statutory demand was issued on 20 June 2000. Sometime in July 2000, the Applicant made payment of HK$160,889.72 to the Respondents reducing her indebtedness to exactly HK$500,000.00. She had applied to set side the statutory demand relying on rules 48(5)(a) and (d) of the Bankruptcy Rules. It is provided in rule 48(5)(a) that the court may grant the application to set aside the statutory demand if "the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand." It is the Applicant's case that she has a cross claim against one of the Respondents, Mr Heung Wah Wing, in High Court Action No. A5083 of 1992 for the sum of HK$500,000.00, which is the balance of the debt specified in the statutory demand. I should mention that under the consent order as to costs, the three Respondents are joint creditors.

24. It may be convenient to give a summary of the past litigation between the parties. In the consolidated action, the Applicant brought an action in trespass against the three Respondents in respect of a garden in a property at Marina Cove, Sai Kung. The Respondents counterclaimed for rectification of the sale and purchase agreement asserting title over the garden land in dispute. Judgment was given by Findlay J in June 1998 in which he found for the Respondents and gave judgment on the counterclaim. The Judge disbelieved the Applicant and her witness in that case.

25. HCA No. A5083 of 1992 was another action brought by the Applicant but against Mr Heung alone. The Applicant claimed in that action that by an agreement evidenced by a memorandum dated 20 February 1992 made between the parties, she had agreed to sell and Mr Heung had agreed to purchase all the fixtures, fittings and furniture of a property at Marina Cove at the price of HK$500,000.00. It is her case that she had delivered the fixtures, fittings and furniture in the property to Mr Heung but Mr Heung had failed to pay the agreed price of HK$500,000.00. Mr Heung's defence is that the Applicant did not deliver any of the fixtures, fittings and furniture to him pursuant to the agreement. Hence, he was not liable to pay her any part of the agreed sum of HK$500,000.00. The action was brought by the Applicant in July 1992. Mr Heung filed his amended defence in March 1995. The next step in the proceedings was taken in February 2000, when the Applicant filed a Notice to act in person. Four months later, her solicitors filed a Notice to act and gave a Notice of intention to proceed after one year's delay. The Applicant claimed in her second affirmation that she had difficulty in raising funds for legal costs and she had applied for legal aid to proceed with this action. However, her application for legal aid was made only in July 2000. There is no adequate explanation given to this court as to why there was a five-year delay. But that as it may, it would appear that discovery in that action had taken place and witness statements had been exchanged. The latest round of witness statement was served by Mr Heung on 10 October 2000. I was told that the Applicant intended to file and serve witness statements in reply to the latest witness statements of Mr Heung. On 20 September 2000, an order was made by the Listing Judge giving leave to set down the action for trial in the Running List within 42 days and directions were given for the filing of supplemental list of documents and the exchange of witness statements within a specified time table. Hence, it would appear that the action would come up for trial in the not too distant future.

26. It would appear from the summary I have given above that there is a dispute of fact as to whether the fixtures, furniture and fittings were delivered by the Applicant to Mr Heung. I do not think I can resolve this dispute as to fact on the affidavits at this stage, notwithstanding the submissions made to me by Mrs Dora Chan, who appeared on behalf of the Respondents in this application. The approach I adopt is the approach similar to the situation where there is a cross claim by a company in a winding-up situation. I have been referred by Mr Sammy Ho, who appeared on behalf of the Applicant, to three cases in this context: Re Finbo Engineering Company Limited [1998] 2 HKLRD 695; In re Bayoil S. A. [1999] 1 WLR 147; and In re Portman Provincial Cinemas Limited, decided in 1964 but reported as a note in [1999] 1 WLR 157. Where there is a genuine and serious cross claim which equals or exceeds the amount of the petition debt, the court would, in the absence of special circumstances, exercise its discretion to set aside the statutory demand.

27. I have been taken by Mrs Chan to the merits or rather lack of merits of the Applicant's cross claim in HCA No. A5083 of 1992. She has submitted that it is relevant to take into consideration that the Applicant was disbelieved by Findlay J in the consolidated action. She has also taken me to some of the documentary evidence relied on by Mr Heung, including the documents relating to the repayment of a loan of HK$300,000.00 made by Mr Heung to the Applicant. I was also referred to the witness statements given by two independent witnesses and the witness statement of a director of one of the Respondents, which supported the version given by Mr Heung. Am I able to say at this stage that there is really no substance in the Applicant's claim or that the evidence she is to give in the action for the cross claim is totally incredible? I am unable to come to that view at this stage. Adopting the words of Harman LJ in Re LHF Wools Limited [1970] Ch 27 at 36, although the cross claim may seem somewhat shadowy at this stage, there is just enough to make the principle work. I am not prepared to hold merely on the basis of affidavits and documents put before me that the Applicant's version in support of her cross claim is palpably untrue.

28. I turn to consider whether there are special circumstances which would warrant the exercise of the court's discretion against the Applicant. Mrs Chan has referred me to the chronology in HCA No. A5083 of 1992. There is undoubtedly delay on the part of the Applicant in pursuing that action, in particular the five-year gap between March 1995 and February 2000. It is regrettable that there has been this delay. However, I cannot disregard the fact that the action is finally moving now and that it is likely to come up for trial fairly soon. If, say, no action should be taken by the Applicant in setting down the action for trial, Mr Heung is at liberty to do so pursuant to the order given by the Listing Judge on 20 September 2000.

29. It was submitted to me that the order ordering the Applicant to pay costs to the Applicant was a consent order and that she did not at any time apply for a stay of execution on this order. It was argued that if the statutory demand was to be set aside, the Applicant would in effect have obtained a stay of execution of an order made by consent via the back door. I do not agree with this. The Respondents are not stopped from levying execution on the Applicant in any way. The setting aside of the statutory demand would merely mean that they cannot proceed with a petition for bankruptcy at this stage.

30. Mrs Chan has also relied on the difficulty in serving the Applicant with various court documents at various stages in the consolidated action and with the statutory demand. It was asserted that the Applicant was being deliberately elusive and that she had given a wrong address to mislead the process server. Even if I were to accept all this, I do not think this would constitute a special circumstance to justify the exercise of the court's discretion against the Applicant.

31. For the above reasons, I have come to the view that it is appropriate in this case to set aside the statutory demand and I do so. I will hear the parties as to costs.