HAY DESIGN LTD v. HENG TAI CONTRACTING (INT'L) CO LTD

HCCT 58/2016

[2018] HKCFI 428

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 58 OF 2016

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D E C I S I O N

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Background

1.  In this action, the plaintiff (“HD”) claims that it made an oral agreement with the defendant (“HT”), whereby the parties agreed, in early 2009, on a “profit sharing arrangement” for various fitting out and decoration projects which were jointly completed by them (“Agreement”). According to the Statement of Claim filed in these proceedings (“SOC”), the express terms of the Agreement were that the parties would jointly prepare a tender for a project, and if the project is awarded to the party submitting the tender (“Leading Party”), the other party shall cooperate with the Leading Party to jointly complete the project.  The Leading Party would be responsible for communication with the employer and other relevant parties of the project, and preparing the summary of expenses incurred by the parties in completing the project, and after deducting all expenses, the profit of the project would be equally divided between them.

2.  According to HD, it was the Leading Party in respect of 4 fitting out projects (“HD Projects”), namely, the ISL Project, the King’s Road Project, the Café Too Project and the Marina Club Project, whereas HT was the Leading Party in respect of 2 projects (“HT Projects”), known as the One Central Project and the Lane Crawford Project.  HD claims that for the One Central Project, it had incurred expenses in the total sum of $1,181,589.50, but that in breach of the Agreement, HT only reimbursed a sum of $579,089.50 to HD.  HD further claims that a sum of $835,246.88 is due to it from HT, as 50% of its share of the profits of the One Central Project (which it claims to be $1,670,493.76).

3.  In respect of the Lane Crawford Project, HD claims that it had incurred expenses in the sum of $1,259,788.80, and is further entitled to a sum of $8,169,480.22, being 50% of the profit of $16,338,960.43 of the Lane Crawford Project.

4.  HD accordingly claims from HT the total sum of $10,867,015.90 as its share of the profits under the 2 HT Projects.  It agrees to give credit to HT of $1,178,158.50, being the profits under the 4 HD Projects.

5.  By way of defence, HT denies that there was any Agreement made between the parties in early 2009 for profit sharing, as HD alleges.  HT claims that there were agreements made at different times in August 2009, May 2010 and mid-2011, whereby HT agreed to provide “funding, staff, construction materials and services” to HD for the ISL Project, Café Too Project, the King’s Road Project and the Marina Club Project.  HT accepts that HD had offered to share with HT half of the net profit of these projects.

6.  However, HT claims that in respect of the One Central Project and the Lane Crawford Project, HD had agreed at HT’s request in August 2010 to provide one or 2 members of staff to HT on a short-term and part-time basis, for an agreed monthly fee.  HT alleges that although there had been discussion in mid-2011, when HD asked to participate in the Lane Crawford Project, HD was short of funds and could not afford any capital injection, and accordingly no agreement was reached for HD to participate in the completion of the Lane Crawford Project at all.

7.  HT counterclaims in the proceedings for its cost of providing staff, services and for incurring expenses for the Marina Club Project and for another Cable TV Project, in the total sum of $1,601,489, together with its share of the profits, and the expenses incurred under the ISL Project, Café Too Project and the King’s Road Project, in the total sum of $1,695,897.

8.  Directions for discovery and exchange of witness statements were given at the 1^st Case Management Conference on 16 October 2017.  On 5 December 2017, HT formally applied for there to be a separate trial of liability, as to whether there was in fact an oral agreement concluded in the terms alleged by HD in the SOC, and whether the total of 6 projects comprising the 4 HD Projects and the 2 HT Projects fell within the scope of the Agreement, before any further trial on the sums claimed to be payable by HT to HD under the Agreement.

9.  The application for separate trials is opposed by HD, on the basis that there are no exceptional circumstances to justify the separate trials on liability and quantum, and that it is not just and convenient for there to be a departure from the general rule for all issues in the case to be tried at the same time.

10.  The Court has the discretion under Order 33 rule 3 RHC to order any question or issue arising in a cause or matter to be tried before, at or after the trial and to give directions as to the manner in which the question or issue should be stated.  The parties do not dispute that the general rule is that all issues are to be tried at the same time unless it is just and convenient to do otherwise, and that “just” means fair to both sides, without one side or the other gaining an undue advantage by a separation, whereas “convenient” means convenient to both parties and advantageous from the point of view of costs.

11.  At the end of the day, it is a question of case management, and the Court is to consider whether an order to separate the trial on liability and quantum would be conducive to achieving the underlying objectives of the CJR, of increasing the cost-effectiveness of any practice and procedure to be followed, ensuring that a case is dealt with as expeditiously as is reasonably practicable, to promote a sense of reasonable proportion and procedural economy, and of course ensuring fairness between the parties.  It is the duty of the Court to further the underlying objectives of the rules by actively managing cases, and this includes identifying the issues at an early stage, deciding promptly which issues need for investigation and trial, and deciding the order in which the issues are to be resolved.

Whether there should be split trials

12.  Having carefully considered the pleadings, the issues raised in the pleadings, and the submissions made by counsel for both parties, I have come to the conclusion that it will be just and convenient to order the liability of the parties under the Agreement to be determined first, and that such an order will better serve the underlying objectives of the rules, of cost-effectiveness and proportionality, for this action.

13.  It is pertinent that at the hearing of the Case Management Conference, HD indicated that expert evidence will be required on the quantification of the expenses and the profits of the projects in question which are said to comprise the subject matter of the claim and the counterclaim in the proceedings.  HT has not formally indicated its stance on expert evidence, since it maintains that the issue of the parties’ liability under the Agreement should be determined first. 

14.  On the face of the pleadings as they currently stand, it is inevitable that expert evidence on quantum would be required in the absence of agreement on the figures identified in the pleadings for expenses incurred, deductions made and profits allegedly accrued in respect of each of the Projects.  Whether the expert evidence to be adduced will be in the form of a single joint expert’s report, as the Court prefers, or separate reports of experts to be appointed by each party, the expert evidence will have to address the parties’ breakdown and treatment of their expenses and the costs of each of the Projects, before the profits and the parties’ alleged share can be ascertained.

15.  Directions on expert evidence will inevitably require production of documents relating to each party’s costs and expenses paid for each of the Projects and to payments received by each party, the compilation of expert reports, meetings of experts if separate experts are to be appointed, identification of issues in dispute between the experts, and preparation of final reports of the experts justifying any difference in their views.  If separate experts are to be appointed, there will be examination and cross-examination of experts at trial, and submissions on the expert evidence, and which aspects should be preferred by the Court on the issues in dispute so far as quantum is concerned.  This will be a time-consuming and costly process, for each party.

16.  However, on the pleadings and according to the factual evidence, the key witnesses of HD and HT who had allegedly agreed on the terms of the Agreement relating to the Projects have put forward opposing versions of the Agreement, and whether it was in fact made, in 2009.  According to the Defence, HT claims that there was no agreement at all to share the profits of the One Central Project and the Lane Crawford Project at all, since HT only agreed to pay for monthly fees for HD’s provision of the services of Ken Ng and Albert Au.  In respect of the HD Projects, HT claims that the express terms of the Agreement as pleaded in the SOC and as relied upon by HD are too uncertain and vague to be enforceable.  If any agreement existed for the sharing of profits under the HD Projects, HT claims that there were separate agreements, made at different dates.

17.  It remains to be determined at trial, after examination and cross-examination of the main protagonists (ie Mr Kwong of HD and Mr Chan of HT), whether the Agreement was made in early 2009 as HD alleges, the exact terms discussed and agreed between Kwong and Chan, and whether these terms extended to all the HD Projects and the HT Projects, as to how profits were to be calculated and shared between the parties.  The trial judge may, after hearing and considering all the evidence, accept all or only a part of the evidence of Kwong on the terms of the Agreement.

18.  Without a determination on the exact terms and effect of the Agreement, and the Projects to which the Agreement relates for the sharing of profits, it will be a futile exercise for any expert to be instructed at this stage, before trial, to give expert evidence on what expenses should be considered, whether and how such expenses should be deducted, which Projects are relevant to the Agreement, and how any profits are to be ascertained for sharing.  The experts can only be instructed to give their opinion on the calculation of expenses and profits on the assumption that the terms are as alleged by HD.  The time to be spent by the legal advisors in appointing and instructing the experts, and by the experts in considering the papers and compiling their reports, and the expenses associated therewith, may all be wasted if the trial judge should ultimately find, either that there is no Agreement as alleged by HD, or that the terms of the Agreement materially differ from those asserted by HD, and/or differ from those terms as asserted by HT - after the evidence of Kwong and Chan have been tested against the entirety of the evidence at trial.

19.  It will be more costs effective if the engagement of experts and the preparation of evidence on quantum is postponed until after a trial on the existence and effect of the Agreement.  That, according to HT, should take about 3 days (instead of 10 days for both liability and quantum).  If the Court finds that there is no binding Agreement, that should be the end of the matter. If the Court finds that there was an Agreement on the terms alleged by HD, or on such other terms as alleged by HT or as found by the Court, the parties may then proceed with the engagement and preparation of expert evidence on the calculation of expenses and profits, on the basis of the terms and effect of the Agreement as found, and not on any other irrelevant terms.  If necessary, a separate trial on quantum can thereafter proceed.

20.  The saving of the costs of the preparation of expert evidence on quantum (which may well prove to be inappropriate, and largely if not entirely wasted, in the light of the Court’s findings on the Agreement and its precise terms) until after the conclusion of the trial or liability should be fair and advantageous to both sides.

21.  For these reasons, I will make an order that the issues identified in paragraph 1 of the Summons issued by HT on 5 December 2017 be tried before the trial on the quantum of any amount payable to the Plaintiff under its claim in the action, save that paragraph 1 (2) be amended to refer to “paragraphs 6 and 7” of the SOC.

22.  It should be recorded that HT, through its Counsel, undertook to the Court that HT would withdraw all its counterclaims if the 1^st trial on liability under the Agreement should conclude in favor of HT, with HD’s claims against HT dismissed by the Court.

23.  There is no necessity to make further directions on the exchange of factual witness statements, which should have taken place already and should have dealt with both liability and quantum, to the extent that it has to be dealt with by the factual witnesses of HD and HT.  Discovery should extend to all questions in issue on the question of liability, including the making and the terms of the Agreement relating to all the HD and HT Projects.

24.  The fair order for costs would be that such costs should be in the cause, and I make an order nisi to such effect.