SUMIKIN BUSSAN INTERNATIONAL (HK) LTD. v. THE PRECAST PILING & ENGINEERING CO. LTD. AND ANOTHER

HCA3814/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3814 OF 2001

--------------

--------------

-------------------------

J U D G M E N T

------------------------

1. The 1st defendant ("D1") appeals against an Order ("the 1st Order") dated 14 March 2002 whereby Master Au-Yeung entered summary judgment against D1 in favour of the plaintiff ("P") for $2,410,124.60 with interest at the judgment rate from date of writ (25 August 2001) until payment.

2. The 2nd defendant ("D2"), who is a director of D1, appeals against an Order ("the 2nd Order") dated 4 December 2001 whereby Master de Souza entered summary judgment in P's favour against D2 for $2,410,124.60 with interest on $531,855 at the judgment rate from 4 July 2001 until payment and interest on $1,878,269.60 at the judgment rate from date of writ until payment.

Background

3. By a Sales Contract No. SDC00-052 ("Contract No.SDC00-052") dated 16 August 2000, P agreed to sell and D1 to buy Universal Bearing Piles ("the piles") with specification of BS4360 Grade 55C as follows :

"Size/Qantity :	a)	305 x 305 x 180 Kg/M x 12M -- 1,000 pieces
		(2,160.00 M/T)
	b)	305 x 305 x 149 Kg/M x 12M -- 851 pieces
		(1,521.588 M/T)
Total Quantity :		1,851 pieces (3,681.588 M/T)
Price :		HK$2,800.00/MT supply & delivery to site
Amount :		HK$10,308,446.40"

One lot of piles was to be delivered "by early to mid-October 2000", while a second lot was to be delivered "by early to mid-November 2000".

4. The piles were for use by D1 at the Indoor Recreation Centre, Area 100, Ma On Shan ("the Ma On Shan works") and Nos.477-499 Shun Ning Road, Kwun Tong. The Ma On Shan works was a Government construction project, supervised by the Architectural Services Department ("ASD"), for which D1 was a contractor.

5. On 4 October 2000 D2 executed a Guarantee ("the Guarantee") in P's favour "in consideration of [P] at [D2's] request from time to time supplying goods on credit or otherwise giving credit or granting time to or accounting of [D1]". The Guarantee provided as follows :

"1. The Guarantor shall pay SUMIKIN on demand and hereby guarantees the repayment to SUMIKIN on demand of all sums of money which now are or shall hereafter become due to SUMIKIN from the Principal [D1] in respect of any dealing or transaction on account of or for the benefit or accommodation of or at the request of the Principal together with all interest, costs, commission and other charges and expenses which SUMIKIN may charge against the Principal or may incur in enforcing or obtaining payment of the sums of money due to SUMIKIN from the Principal as SUMIKIN in their absolute discretion think fit....

.....

3. This Guarantee shall be continuing guarantee of the extent at any one time of HK$10,308,446.40 ... and shall remain in full force and affect so long as any money remain owing by the Principal to SUMIKIN notwithstanding the death, bankruptcy, liquidation, incapacity r any change in the constitution or composition of the Principal or the Guarantor or any transfer or assignment by SUMIKIN of its rights hereunder or any settlement of account or other matter whatsoever.....

.....

6. The Guarantor shall not be exonerated by any act or omission which, but for this provision might operate to release or otherwise exonerate the Guarantor from its obligations hereunder, including, without limitation, and whether or not known to the Guarantor :

a) any time or indulgence granted to, or composition with the Principal, the Guarantor or any other person; or any part payment or

b) the taking, variation, compromise, renewal or release of, or refusal or neglect to perfect or enforce any rights, remedies or securities against the Principal, the Guarantor or any other person....

.....

14. This Guarantee shall be governed by and construed and interpreted in accordance with Hong Kong law.

Additional Clauses :

This Guarantee Agreement is expire after the Guarantor completely settle the payment of the Contract SDC00-052."

6. On 22 December 2000 Contract No.SDC00-052 was varied by a Contract No.SDC00-052 (Revised) ("the Revision"). By the Revision P agreed to sell and D1 to deliver piles as follows :

"Size/Quantity :	a)	305 x 305 x 149 Kg/M x 12M -- 1,789 pieces
		(3,198.732 M/T)
	b)	305 x 305 x 180 Kg/M x 12M -- 477 pieces
		(1,030.320 M/T)
Total Quantity :		2,266 pieces (4,229.052 M/T)
*Additional Quantity from the original Contract : 4,229.052 M/T - 3,681.588 M/T = 547.464 M/T at HK$2,780.00/Mt supply & delivery to site
Amount :		HK$1,494,576.72."

7. By an Invoice No.SB01/131 dated 23 March 2001 P charged D1 $876,477.60 for the delivery of 172 pieces (307.536 MT) of 149 Kg/M piles on the invoice date. Invoice No.SB01/131 quoted the reference "Contract No.SDC00-052" and stipulated the due date for payment as 22 April 2001.

8. By an Invoice No.SB01/177 dated 6 April 2001 P charged D1 $1,401,792 for the delivery of 280 pieces (500.640 MT) of 149 Kg/M piles on the invoice date. Invoice No.SB01/177 quoted the reference "Contract No.SDC00-052" and stipulated the due date for payment as 6 May 2001.

9. By a Sales Contract No.SDC01-037 ("Contract No.SDC01-037") dated 18 April 2001, P agreed to sell and D1 to buy further Universal Bearing Piles ("the later piles") of BS4360 Grade 55C specification as follows :

"Size/Quantity:	305 x 305 x 223 Kg/M x 12M -- 75 pieces 200.700 M/T
Unit Price :	HK$2,650.00/MT supply & delivery to site
Amount :	HK$531,855.00"

The later piles were for use by D1 at a Tsing Yi project. Estimated delivery time for the later piles was between 23 and 28 April 2001.

10. On some date before 23 April 2001 D1 gave a post-dated Cheque No.792406 in the amount of $876,477.60 in payment of Invoice No.SB01/131.

11. By fax dated 23 April 2001 D2 on D1's behalf asked P to postpone presentation of Cheque No.792406 because "our payment from ASD has been delayed".

12. By an Invoice No.SB01/204 dated 24 April 2001 P charged D1 $531,885 for delivery of the later piles on the invoice date. At the same date D2 handed P a personal Cheque No.485669, post-dated 28 May 2001, for the invoice amount. Invoice No.SB01/204 stipulated the due date for payment as 23 May 2001.

13. On 9 May 2001 P presented Cheque No.792406 for payment. It was dishonoured.

14. By letter dated 18 May 2001 D2 on behalf of D1 sought "an extension of time until 31 May 2001" to honour Cheque No.792406. Delay was said to be "due to the defer payment from the main contractor". On 30 May 2001 D1 asked for a further extension to 6 June 2001 for payment under the cheque. This was because "we have not yet received payment from our main contractor". Then on 4 June 2001 D1 faxed P that "we are going to receive payment from the main contractor in tomorrow afternoon". D1 assured P that "our payment to you should be honour on 6th June 2001". But on 6 June 2001 D1 wrote that it would only be receiving payment from its main contractor on 6 June 2001 and "our payment to you should be honour on 7th June 2001".

15. On 7 June 2001 P received D2's personal Cheque No.845444 for $400,000 in part payment of Invoice No.SB01/131. That cheque was honoured, leaving a balance of $476,477.60 outstanding on Invoice No.SB01/131.

16. By its Cheque No.792498 dated 31 May 2001 D1 purported to pay the $1,401,792 due under Invoice No.SB01/177. In addition, by its Cheque No.909096 dated 15 June 2001 D1 purported to pay the $476,477.60 outstanding on Invoice No.SB01/131. Both these cheques were dishonoured on 4 July 2001 when presented by P for payment.

17. On 4 July 2001 P also presented D2's Cheque No.485669 for payment. That cheque was dishonoured as well.

18. By letter dated 19 July 2001 P's solicitors requested full payment of Invoice Nos.SB01/131, SB01/177 and SB01/204 (collectively, "the three Invoices"). In answer D1 provided two cheques dated 25 July 2001 : a Cheque No.738510 for $1,401,792 in purported payment of Invoice No.SB01/177 and a Cheque No.738511 for $476,477.60 in purported payment of the outstanding amount due on Invoice No.SB01/131. Both cheques were dishonoured upon presentation on 26 July 2001.

19. On 26 July 2001 P also re-presented D2's Cheque No.485669. The cheque was again dishonoured.

20. On 2 August 2001 D1 faxed P as follows :

"Re : Outstanding Payment

With reference to our recent meeting regarding the captioned, we estimate that the Hong Kong Bank Cheque No.485669 HK$513,855 can be banked in on 3rd August, 2001. Unfortunately, our employer informs us today that the payment to us will be delay one to two days.

Therefore, we hereby request you to bank in the above-mentioned cheque on 6th August, 2001.

We apologise for any inconvenience caused."

21. On 25 August 2001 P issued a Writ and Statement of Claim seeking the following remedies :

(1) Against D1 :

(a) $2,410,124.60 under the 3 Invoices;

(b) further or alternatively, $1,878,269.60 in respect of one or more of Cheque Nos.792496, 909096, 738510 and 738511 (collectively, "D1's cheques"); and,

(c) interest.

(2) Against D2 :

(a) by reason of the Guarantee, $2,410,124.60 in respect of the 3 Invoices;

(b) further or alternatively, $531,855 in respect of Cheque No.485669; and,

(c) interest.

Discussion

22. Mr Simon Yip, counsel for D1 and D2, submits that D1 has defences to P's claims as follows :

(1) The piles delivered under Contract No.SDC00-052 prior to variation in December 2000 were not of Grade 55C as stipulated, but only of the lesser Grade 50B. Consequently, D1 had to drive more piles than originally anticipated for the Ma On Shan works. This caused delay for which the Government penalised D1 by imposing liquidated damages of $2,462,500. P claims to set-off the cost of extra piles used in the Ma On Shan works against the amounts due under one or more of the three Invoices. Further, since P's delivery of sub-standard piles effectively caused D1's delay on the Ma On Shan works, D1 also claims a set off against P of the liquidated damages imposed on D1.

(2) The deliveries for which Invoice Nos.SB01/131 and SB01/177 were issued were only agreed by D1 under duress. Duress came about because :

" it is a standard in the industry and for safety reasons that only pile segments from one manufacturer is permissible in order to have one particular pile completed" (D2's 1st Affirmation, Paragraph 6).

This meant that, despite P's delivery of lesser grade piles, D1 had no choice but to obtain extra piles from P to complete the works which it had begun using the 1st batch of piles delivered by P. P could not switch to another manufacturer's piles. D2 claims that P exploited this situation by :

"exerting pressure and duress on the 1st Defendant in forcing the 1st Defendant to buy (instead of obtaining at the Plaintiff's costs) the said additional pilings from the Plaintiff" (D2's 1st Affirmation, Paragraph 13).

D2's case is that "[a]s the Government contract is still in progress, the said duress has never stopped." See Skeleton Submissions for the defendants ("D Skeleton"), Paragraph 7.

(3) D1's four cheques were handed over by D1 to P under similar duress. "Therefore the suit cheques are all voidable and such has been avoided by the 1st Defendant." See D Skeleton, Paragraph 8.

(4) In any event, "the consideration provided by the Plaintiff for the suit cheques by reasons of the aforesaid [that is, the alleged defences already summarised in this Judgment] are existing duties of the Plaintiff and could not constitute valid consideration. Therefore there is a total failure of consideration." See D Skeleton, Paragraph 9.

23. Mr Yip submits that D2 has defences to P's claims follows :

(1) P obtained Cheque No.485669 by recourse to the duress already described. That cheque has now been "avoided" by D2.

(2) The claim under the Guarantee has been discharged by the P's breach of Contract No.SDC00-052.

(3) In any event, the Guarantee expired on 2 March 2001 by reason of the full payment of the 1st batch of piles delivered by P.

24. I consider these defences below.

D1's defences : set off of extra piling costs and liquidated damages

25. D1 claims that the 1st lot of piles delivered by P were sub-standard and so caused D1 to incur delay on the Ma On Shan project.

26. I examine first D1's case that piles were below standard. For this D1 relies on a letter dated 1 December 2000 from ASD to D1 reporting that yield stress test results on five of seven test samples from the initial piles delivered by P did not comply with the requirements of BS4360 Grade 55C. Paragraph 10 of D2's 1st Affirmation alleges that as a result of the test finding :

"the only remedy the 1st Defendant could offer to the government was to invite ASD to accept that the piles already driven as if they were Grade 50B instead of Grade 55C. And that the 1st Defendant was to provide and drive more piles of 149 kg/m Grade 50B to be driven to the same site so to make good the quality problems of the piles by a higher density of piling network. The piles supplied by the Plaintiff and used by the 1st Defendant, in the light of the aforesaid test result, could only be regarded as Grade 50B by ASD, instead of Grade 55C as ordered."

27. D1 also relies on its letter dated 8 December 2000 to P which states :

"Re : Sale Contract SDC00-052

Please be informed that of those steel H-piles delivered to the project 'Indoor Recreation Centre Cum Library at Area 100 Ma On Shan' was founded as 'substandard' and do not comply with the requirement of BS4360. We have proposed to carry out re-test on 14 further test samples on the same batch of steel 'H' pile (Appendix I). As the delivery material is of 'sub-standard' material, all on site work had been suspended on 31st Nov 2000. Furthermore, all previous piles driven from 25th Oct 2000 to 31st Nov 2000 was not recognised."

28. P's evidence in reply to D2's allegations is found in paragraph 7 of the Affirmation of Waitom Leung Wai Tong ("Mr Leung"), Manager of P's Metal Department :

"I verily believed that the reason [for the poor test results] is not because of any alleged substandard piles but because of incorrect testing method. Therefore on 19th December 2000, I, Kan [D2] and representatives from Sumitomo and [ASD] attended the Public Works Laboratories at Kowloon Bay to conduct re-testing of the Grade 55C Piles. This time a correct testing method was used and all the Grade 55C Piles were found to meet the specification of BS4360 Grade 55C. It was also confirmed that the incorrect method previously adopted was the H-beam method whereas the correct method should be the H-Pile method."

29. On 22 December 2000 P wrote to D1 as follows :

"Re : H-Piles Re-Test for Ma On Shan Site -- Our Contract SDC00-052

We noted that the result of the re-testing for the H-piles which was conducted on 19th December 2000 at the request of the Public Works Laboratories was proved satisfactory...."

30. D1 responds to Mr Leung in paragraph 10 of D2's 2nd Affirmation :

"10. I crave leave to refer to paragraphs 7 to 9 of [Mr. Leung's] affirmation. I hereby acknowledge that there indeed was another test performed on 19th December 2000. However I strongly deny that anyone had ever confirmed 'that the incorrect method previously adopted was the H-beam method whereas the correct method should be the H-Pile method'. In fact only H-beam method was used in both 1st and 2nd tests. I am dismayed on what basis the Plaintiff made the said allegations. More strangely, the Plaintiff does not exhibit any documentary evidence showing its allegation. I would in this respect invite the Plaintiff to exhibit any government documents confirming the alleged wrong tests adopted, if there is ever any.

11. The 2nd test on 19th December 2000 was performed after the ASD for the government approved the amended plan on 8th December 2000 as mentioned in paragraph 12 of my 1st Affirmation. As mentioned in my 1st Affirmation, more piles segments of a lesser quality were required to be driven under amended plan. Therefore the standard and criteria under the amended plan and the 2nd test are lower than that of the 1st test.

12. Under the 1st test, the minimum point to be met by the concerned pile segments were 430 mpa and produced and shown to me is 'KHS-7' being a relevant extract of BS4360. But only a failing result of 394 mpa minimum was obtained under the 1st test performed on the selected segments ('the segments under the 1st test'). Further, I refer to the paragraph 7 of my 1st Affirmation and would make correction than instead of all, it would all except two tested samples failed.

13. After the plan was amended as mentioned above, similar test had to be performed and hence the 2nd test. This time, the maximum criteria was set lower than that of the 1st test because of higher density of piles to be driven, and such was set to be 394 mpa, the minimum obtained under the 1st test so that the segments under the 1st test could remain. Further and under the 2nd test, different pile segments than the segments under the 1st test were used for testing (the 'segments under the 2nd test'), and the result obtained was satisfactory and also surprisingly passed the standard under the 1st test.

14. Therefore, the important thing is to note is that the segments under the 1st test are different from the segments under the 2nd test. Even the result of the 2nd test was satisfactory for both 1st and 2nd tests, such will not make good the segments under the 1st test which was 430 mpa required under the original plan. It would only make good the segments under the 1st test IN THE CONTEXT OF THE 2ND TEST. It is therefore absolutely wrong to say that the alleged Grade 55C piles supplied was good because it passed the 2nd test.

15. If the 2nd test has the effect of making good the failure under the 1st test (which is not the case) one wonders why the 1st defendant still had to incur large expenses in buying more Grade 50B piles for the government contract. One must bear in mind that, if what the Plaintiff alleges is correct, the original plan (using also Grade 55C) which at all material times was viable and accepted by ASD would be a cheaper solution for the 1st defendant in the performance of the government contract.

16. For reasons above, the 1st Defendant could not treat the failure under the 1st test as good merely by reasons of the 2nd test. To do so, it would be negligent on the part of the Defendants risking the structure of the project building. Unlike the project in Shun Ning Road, the Government has insist in this Ma On Shan project the said tensile test. Therefore, it is not fair to expect the 1st defendant to completely forget the failure under the 1st test."

31. What I derive from D2's evidence is that, by agreement among the parties (including the Government), there was a re-test on 14 December 2000 to see whether the 1st lot of piles delivered by P did or did not conform to Grade 55C standard. For the re-test, different samples were used from those used for the 1st test. On D2's evidence the same methodology was used for the re-test as for the 1st test. Mr Leung says a different test was used. But assume that D2 is right. What is significant is that all samples used in the re-test met the relevant Grade 55C criteria. D2 does not dispute this outcome, although he describes it as "surprising". Nonetheless, surprising or not, the statement in P's letter of 22 December 2000 that "the re-testing for the H-piles ... conducted on 19th December 2000 ... proved satisfactory" can only be true.

32. D2 then says that, however positive the outcome of the re-test, the poor results from the 1st test should not be ignored. Unfortunately, I do not follow D2's logic in this regard. In my view, paragraphs 14 to 16 of D2's 2nd Affirmation amount to no more than an assertion that the 1st lot of piles delivered by P was bad notwithstanding the re-test results. No cogent reason is given why the re-test results should be discarded in favour of the 1st test result.

33. Thus, even if one accepts D2's evidence on the facts, the allegation that P breached Contract SDC00-052 by an initial defective delivery does not get off the ground. There is no credible evidence that the 1st lot of piles supplied was sub-standard. Without a breach for which P can be held responsible, there can be no claim of set-off for alleged expenses or delays said to arise in consequence of a wrongful delivery of the piles.

34. There is an additional difficulty in D1's case on the set-off of liquidated damages. That is the question of causation.

35. Mr Yip submitted that P was to blame for all 125 days of delay by D1 on the Ma On Shan works. That 125 days is an aggregate of delays experienced on the Ma On Shan works between 25 October 2000 and 30 November 2001. The $2,462,500 liquidated damages mentioned above is obtained by multiplying the 125 days by the agreed charge of $19,700 per day of delay. See Exhibit CKMM-3 ("CKMM-3") to the 3rd Affirmation of Cheung Kam Min Mickey (filed on the Defendants' behalf). CKMM-3 does not state how the 125 days were calculated. If D1 seriously contends that all or part of the delay was due to P, D1 needs to provide some break-down of the 125 days aggregate figure to enable the Court to assess whether there is an arguable case that P caused the individual periods of delay said to comprise that 125 days period. For all one knows the 125 days may have been wholly due to D1's slow working. D1 has not made any attempt at a breakdown.

36. Examine D1's case more closely. D1 learned of the 1st test results on or about 1 December 2000. On 6 December 2000 ASD wrote to D1 that D1's progress on the project "is too slow to ensure completion of the Works by the due date". ASD's letter suggests that, even prior to the problem caused by the 1st test results, D1 had already accumulated a substantial period of delay. If so, such period of delay (that is, delay before receipt of the 1st test results and realisation that P's delivery might be problematic) must be D1's fault and cannot be attributable to P. Until the 1st test results were received, D1 would have believed that everything was in order and been using the piles supplied by P as if they were within specification.

37. Nonetheless, assume in D1's favour that ASD's letter of 6 December 2000 was referring to delays consequent upon the 1st test results. By 14 December 2000 the re-test established that the piles were in fact within standard. So known to be within specification, the piles can no longer be treated as a source of delay from 14 December 2000. That means the maximum period for which P (as opposed to D1) can be held responsible for delay on the Ma On Shan works is the number of working days between 1 and 14 December 2000. That is certainly not 125 days.

38. Now assume 14 days' delay between 1 and 14 December 2000 due to the 1st test results and assume that such delay may somehow be blamed on P (even though, as established by the re-test, P actually delivered Grade 55C piles). We know from CKMM-3 that Government apparently granted D1 65 days' extension by some 11 letters issued by ASD between 19 April and 15 October 2001. The 11 letters have not been exhibited. To what extent were delays incurred on the Ma On Shan works prior to 19 April 2001 offset or extinguished by extensions granted under the 11 letters? The answer is unknown. It is unknown because D1 has not condescended to explain (although it could easily have done so) how the 125 days of delay and the 65 days of extension were calculated. As a result of D1's failure to condescend to particulars, the Court cannot assess whether D1 has a possible argument that matters arising out of the 1st test results caused all (or even some) of the 125 days aggregate delay.

39. Essentially, all D1 has offered by way of evidence in support of its liquidated damages set-off claim is a bare statement (CKMM-3) that it incurred 125 days' worth of liquidated damages on the Ma On Shan works. From this solitary premise, D1 invites the Court to conclude that all or some of the liquidated damages imposed on it were due to P. But how can the Court do this? In my judgment D1 needs to do much more to overcome a defendant's evidential threshold in Order 14 proceedings. Faced with an Order 14 application, a defendant cannot be sparing of the particulars of his defence and then claim, as a result of his own parsimony in detail, that there is an obscurity which must await trial for illumination.

40. Accordingly, giving D1 every allowance, I conclude that D1 has failed to establish an arguable case of set-off.

D1's defences : duress

41. The following passages from Chitty on Contracts (28th edn) provide guidance on what must be shown to substantiate a defence of duress :

Paragraph 7-002 :

"Basis of law relating to duress. It was at one time common to treat the legal rules relating to duress (and frequently also the equitable rules relating to undue influence) as resting on the absence of consent. A party who was subject to duress, or even undue influence, was often said to have had his will 'overborne' so that he was incapable of making a free choice, or even of acting involuntarily. Most of the older cases cited in this chapter rest on this assumption and even many modern decisions use the same kind of language. But the basis of the law relating to these topics has been reconsidered in light of the speeches in the House of Lords in Lynch v. DPP of Northern Ireland [[1975] AC 653].... Duress does not 'overbear' the will, nor destroy it; it 'deflects' it. Duress does not literally deprive the person affected of all choice; it leaves him with a choice between evils. A person acting under duress intends to do what he does; but does so unwillingly.... The contract procured by duress is therefore not void; it is voidable -- at the discretion of the party subject to duress."

Paragraph 7-006 :

"Pressure and threats. Once it is accepted that the basis of duress does not depend upon the absence of consent, but on the combination of pressure and absence of practical choice, it follows that it is the nature of the pressure or the threats which becomes all-important. Clearly, not all pressure is illegitimate, nor even are all threats illegitimate. In ordinary commercial activity, pressure and even threats are both commonplace and often perfectly proper. Indeed, in one sense, all contracts are made under pressure: every offeror 'threatens' that unless the offeree accepts the terms offered, he will not get the benefit of whatever goods or services are on offer. Nor can it even be said that the force or weight of the pressure or the threats is the decisive factor, 'for in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor has no choice but to act.' It therefore becomes essential to distinguish between legitimate and illegitimate forms of pressure."

42. I now apply these principles to D1's case of duress.

43. First, I agree with P's counsel Mr Ng that the alleged source of duress is just not credible.

44. D1 claims that, despite the alleged defective delivery of the 1st lot of piles for Contract No.SDC00-052, D1 was compelled by an "industry standard" to keep ordering piles from P as manufacturer of the same. But P is not the manufacturer of the piles; Sumitomo Metal Industries Ltd ("Sumitomo") manufactures them. P only distributes piles and even then not as Hong Kong exclusive distributor. Sumitomo's piles are also supplied here by Mitsui & Co. (HK) Ltd. If dissatisfied with P, D1 could always take his custom to an alternative supplier or manufacturer.

45. In fact, when P refused to supply more Grade 55C piles to D1 without payment of those already delivered, D1 ordered and used some 700 MT of Grade 55C piles manufactured by Nippon Steel Corporation and supplied by Sirpole Ltd in the Ma On Shan works.

46. No doubt conscious of the weakness of the "industry standard" allegation, D2 in his 2nd Affirmation blurs the distinction between obtaining piles from supplier and manufacturer :

"18. As regards paragraphs 10 to 14 of LWT's affirmation, I repeat what I have affirmed in my 1st affirmation in that under the government contract, I had to obtain all pile segment from the Plaintiff as far as possible. Further, if the 1st Defendant were to be allowed by the Government to buy from another source, it would inevitably take months before they could arrive, which to the 1st Defendant was impracticable because by the time these pile segment of another supplier arrived, the 1st Defendant would have been kicked out by the ASD due to extreme delay. As a matter of fact, the delay that has already been caused on this occasion had already lead the 1st defendant to accept a voluntary suspension of its eligibility to government contract until further notice. Produced and shown to me is exhibit marked 'KHS-8' being a copy of the relevant correspondence.

19. Paragraph 14 of LWT's affirmation is just an example of the aforesaid The quantity of Nippon Steel from Sirpole took one month from the ASD to concur with reluctance and two months to arrive from the Plaintiff."

Implicit in the foregoing is the admission that the "industry standard" is not as rigid as originally portrayed in D1's 1st Affirmation.

47. The real problem is now alleged to be delay in having to order piles from a different supplier. But why (apart from D2's assertion) should having to order Grade 55C piles from another Hong Kong supplier necessarily take longer than ordering from P? Would not alternative suppliers have stock in hand to meet customer orders in the same way that P presumably would have stock in hand to meet D1's orders? Is there something special about the requisite piles that orders for them cannot be promptly fulfilled by a supplier? Again the necessary explanatory particulars for the Court to assess the potential of D2's assertion is missing.

48. Second, even if delays are assumed to be inherent in switching to a different distributor as D2 belatedly suggests, one would merely be faced with the typical situation of a contractor needing to make tough decisions under run-of-the-mill commercial pressure: remain with one's existing supplier or switch to someone else. Such commercial pressure cannot be characterised as the illegitimate threat or use of force which is the hallmark of duress.

49. I asked Mr Yip to explain how P could be said to have applied illegitimate force on D1. Mr Yip replied that wrongful force was used on D1 because P had committed a civil wrong by breaching Contract No.SDC00-052. Illegitimate pressure arose (Mr Yip submitted) from P refusing to compensate D1 after P's deficient delivery of the 1st lot of the piles. For my part, I do not see how a party X who for commercial reasons decides to continue business with party Y, notwithstanding party X's belief (right or not) that party Y has previously inflicted an uncompensated wrong on party X, can be said to be acting under illegal pressure from party Y. In any case, as already discussed, there is no credible evidence of a breach of Contract No.SDC00-052 by P.

50. Third, the defendants' behaviour is inconsistent with the theory that at all material times they were under duress. The chronology is replete with faxes from the Defendants asking P for time before presentation for payment of the cheques tendered in respect of the three Invoices. Nothing is mentioned in these faxes about the poor quality of the 1st or any lot of piles as an excuse for non-payment of any obligations under the three Invoices.

51. Mr Yip makes light of the defendants' faxes by suggesting that, because the Ma On Shan works were ongoing at the time, D1 had no option but to string P along with requests for more time. If D1 had complained then about bad delivery, P would have cut off D1's supply of piles with crippling effect on D1's business. In my judgment this explanation is untenable on the evidence.

52. D1 in fact had no hesitation about complaining at a very early stage. On 8 December 2000, after the 1st test and before the re-test, D2 on D1's behalf wrote to P that D1 would have to treat the material already delivered as Grade 50B piles. D2 continued :

"With all piles being considered as Grade 50B standard this involves a substantial increase in pile materials of up to 25% (i.e. about 530 tons). I have to remind you that this additional cost on pile materials and associated cost should be borne by your company. If further tests on samples being found satisfactory, the liquidated damage on delay due to this substantial failure on samples and its associate cost is still to be borne by your company."

I have dealt above with D1's position (echoed in the last sentence just quoted) that, despite a satisfactory re-test, the results of the 1st test cannot be ignored. The point at present is that here is an immediate complaint from D1 the moment when the 1st test results indicate a possibility of something wrong with P's piles.

53. The suggestion that, after the re-test showed P's piles to be within standard, D1 had no option but to suffer in silence otherwise P would not supply piles for the Ma On Shan works, sits ill with D1's readiness to hold P liable for delay on 8 December 2000. The irresistible inference as to why the Defendants did not complain after December 2000 but only asked for time to pay P, is that since the re-test the Defendants accepted that P's piles were Grade 55C and the Defendants were obliged to pay P for the piles as agreed.

54. Fourth, Mr Ng submits (and I agree) that, whatever the position on Contract SDC00-052, there could be no duress under Contract No.SDC01-037. This was entered into about four months after the December 2000 re-test. It was a separate transaction as the later piles were for a project at Tsing Yi. D1 would have been under no compulsion to order piles for this project from P if D1 genuinely believed that P's piles were sub-standard. D1 could have obtained piles for Tsing Yi from a different supplier or manufacturer. No piles from P had previously been used for the Tsing Yi works so transgressing the "industry standard" should not have been a worry for D1. Nonetheless, D1 opted to order piles from P and D2 purported to pay for the same by Cheque No.485669.

55. By reason of the above, I conclude that D1's duress defence is unarguable.

D1's defences : D1's cheques obtained under duress

56. If D1's duress argument in relation to Contract No.SDC00-052 is untenable, the defence of duress in relation to D1's cheques must likewise fail.

D1's defences : total failure of consideration

57. I am afraid that, try as I might, I do not understand this defence. To be fair to Mr Yip, although the line appears in his skeleton, he did not pursue it in oral argument before me. I reject this defence.

D2's defence : Cheque No.485669 obtained under duress

58. For the reasons already discussed, there is likewise no merit in D2's defence of duress in relation to Cheque No.485669.

D2's defence : Guarantee discharged

59. Mr Yip drew my attention to the following passage in Andrews and Millett, Law of Guarantees (3rd edn) at Paragraph 9.17 :

"If the creditor commits a repudiatory breach of his contract with the principal so that the principal is entitled to treat the contract as at an end, the surety is also discharged from further liability....

The principal will, however, remain liable in respect of rights which have accrued due prior to the termination, and the surety will be correspondingly liable....

There appears to be no direct authority as to how the surety's position is affected when the principal affirms the principal contract which has been repudiated by the creditor. It has been suggested that in the event of an affirmation by the principal, the surety ought to remain liable : it is he who takes the risk of an adverse election by the principal, even though it is to some extent unfair that the liability of a surety should depend upon the 'possibly capricious decision of the insolvent principal'. It is submitted that this is the better view, for reasons expressed earlier in this work [at Paragraphs 6.22-6.23 in relation to contracts voidable at the suit of the principal].

A non-repudiatory breach of contract by the creditor, that is, a breach sounding in damages only, will not discharge the surety unless it involves a 'not unsubstantial' departure from a term of the principal contract which has itself been incorporated into the guarantee. Discharge of the surety in these circumstances is explicable on the basis of a variation of the surety's obligation."

60. Mr Yip argued that, as a result of P's breach in delivering a defective 1st lot of the piles, P repudiated Contract No.SDC00-052. The repudiation of that contract meant that D2 was discharged from further liability under the Guarantee securing D1's obligations.

61. Given my conclusion that the allegation of a breach by P of Contract No.SDC00-052 is unfounded on the evidence, there could have been no repudiation of Contract No.SDC00-052. The Guarantee could not have been discharged by any such breach as alleged. This defence must also be doomed to fail.

D2's defence : Guarantee expired

62. Mr Yip referred to the Additional Clause at the end of the Guarantee, providing for the expiry of the Guarantee "after the Guarantor completely settle the payment of the Contract SDC00-052".

63. He submitted that on the evidence in Exhibit KHS-9 ("KHS-9") to D2's 2nd Affirmation P delivered about 1,030 MT of 180 kg/M piles and about 1,662 kg/M of 149 kg/M under Contract No.SDC00-052 before it was varied to become the Revision. KHS-9 further shows that D1 had made full payment for this 1st batch of the piles by 2 March 2001. Since Contract No.SDC00-052 was thereafter amended to become the Revision, the Revision must be treated as a distinct contract from Contract No.SDC00-052. It follows (the argument runs) that, by the Additional Clause, the Guarantee expired on 2 March 2001 at the latest. Any later payment obligations arising for deliveries made under the Revision or Contract No.SDC01-037 and claimed under the three Invoices, would not be covered by the Guarantee. That had been terminated by the time of such later obligations. D2 could not have been liable for such obligations under the Guarantee.

64. Mr Yip acknowledged that there were outstanding payments under the Revision. But (he stressed) the important thing for the purposes of the Guarantee were D1's obligations under Contract No.SDC00-052 as opposed to the Revision which was a different agreement. Mr Yip accepted that the Revision as signed by the parties was headed "Contract No.00-052 (Revised)". But he submitted that was inconclusive. He suggested that P had unilaterally decided to call the Revision "Contract No.00-052 (Revised)", although as far as D1 was concerned D1 was entering into a different contract for Grade 50B piles.

65. There is no merit to this defence. It is pointless to engage in a metaphysical debate on whether at law a variation of a contract means that there come into being two contracts instead of only an amended version of an original one. The parties are business persons, not sophists. The Revision plainly varied Contract No.SDC00-052. But, equally plain from the title "Contract No.00-052 (Revised)" given to the Revision, the contract as varied was still regarded by the parties as Contract No.SDC00-052. Such view constitutes commercial common sense. D1 subscribed to this view as, with eyes wide open, D2 on D1's behalf signed the Revision so titled.

66. D1's obligations under Contract No.SDC00-052 thus remain outstanding. The Guarantee continues to run unexpired. This defence is unarguable.

Conclusion

67. For the above reasons, the Defendants' appeals against the 1st and 2nd Orders fail. The appeals are dismissed. I make an order nisi that P is to have the costs of both appeals, to be taxed if not agreed.

68. I have referred extensively in this judgment to D2's Affirmation. I briefly record here that Affirmation's history. D2 tried to adduce the document at the Order 14 hearing before Master de Souza on 4 December 2001. Master de Souza refused leave for its admission. Mr Yip sought to rely on the Affirmation before me. Asked for his position, Mr Ng graciously said that, to save time and argument, he had no objection to the Court looking at the document de bene esse. The hearing proceeded on that basis.