GOLDEN LEAP CONSTRUCTION CO LTD v. HARAPLAZA CONSTRUCTION LTD

HCCT 63/2022

[2023] HKCFI 1596

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 63 OF 2022

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D E C I S I O N

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Background

1.  It can be said that the position of the Defendant in this case has so far been shambolic.

2.  There is now before the Court the Defendant’s application (by summons issued on 8 December 2022) for leave to “serve” a Third Party Notice (“Notice”) it had issued and filed in Court on 28 November 2022. The Defendant admits that the Notice was issued after its Defence and Counterclaim was filed on 22 November 2022, and that leave was required under Order 16 rule 1(2) RHC before the Notice could be issued, but that it had failed to obtain the necessary leave from the Court. It was only on 8 December 2022 that the Defendant issued a summons (“Leave Summons”) seeking the Court’s leave under Order 16 rule 1(2), which Leave Summons was served on the Plaintiff. By then, the third party had acknowledged service of the Notice, although the Plaintiff highlighted that the third party was not served with the Leave Summons.

3.  The Plaintiff opposes the Leave Summons and contends that the Defendant has failed completely to comply with the provisions of Order 16 which require any application for leave to issue a third party notice to be supported by affidavit, setting out essential particulars which are all set out in rule 2(2). The affirmation filed with the Leave Summons gave no particulars as required, and none of the necessary particulars are set out in the Notice itself. The Plaintiff also applies by its summons of 14 December 2022 (“Strike Out Summons”) to strike out parts of the Defence and Counterclaim which was filed on 22 November 2022.

4.  The Leave Summons and the Strike Out Summons were dealt with at the same hearing. The Defendant submitted that as in the case when there is an application of amendment together with an application to strike out, the Court looks at the proposed amended version of the pleading, as striking out is drastic and should only apply to a plain and obvious case. On behalf of the Defendant, it was submitted that since the Strike Out Summons is highly dependent on whether the Court would accede to the Leave Summons in favour of the Defendant, the Court should consider and deal with the Leave Summons first.

Whether any leave should be granted under Order 16

5.  According to the Defendant, although the legal advisers had admittedly overlooked Order 16 at the time when the Notice was issued, it was rectifying the matter by the Leave Application, and if the Leave Application had been issued before the service of the Defence and Counterclaim, leave would “almost certainly have been granted” by the Court. It was explained that this was because the Court would exercise its discretion to grant leave so long as a prima facie case is made out under Order 16 rule 1 (1). The merits should not have to be considered (citing Edison & Swan United Electric Light Co v Holland (1889) 33 Ch D 497).

6.  I cannot agree that leave for the issue of the Notice would almost certainly have been granted by the Court, as the Defendant claims.

7.  Order 16 rule 1(2) states that a defendant may not issue a third party notice without the leave of the court unless he issues the notice before serving his defence on the plaintiff.

8.  When an application for leave to issue a third party notice is made, Order 16 rule 2(2) applies. The rule states that the application “may” be made ex parte, unless the Court otherwise directs, but where a defendant issues an inter partes summons for his application for leave under Order 16 rule 2, the provisions of rule 2(2) equally apply to the application.

9.  As rightly pointed out by Counsel for the Plaintiff, the Defendant in this case has totally ignored the provisions of Order 16 rule 2, and the requirements therein set out in respect of the application for leave to issue a third party notice. Rule 2(2) states:

“An application for leave to issue a third party notice must be supported by an affidavit stating –

(a) the nature of the claim made by the plaintiff in the action;

(b) the stage which proceedings in the action have reached;

(c) the nature of the claim made by the applicant or particulars of the question or issue required to be determined, as the case may be, and the facts on which the proposed third party notice is based; and

(d) the name and address of the person against whom the third party notice is to be issued.” (Emphasis added)

10.  The affirmation of Lok Tze Bong (the Defendant’s solicitor) which was filed with the Leave Summons did not set out any of the requisite particulars. Lok only stated that the Notice was filed and served without leave, and asked for leave to file and serve same.

11.  The purpose of the requirement for particulars is obviously to enable the Court to consider whether it would be appropriate and proper for leave to be granted for the issue of the third party notice, which has the effect of practically joining a party in the proceedings commenced by the plaintiff against the defendant, and may have effect on the trial of the plaintiff’s action. Although the original action and the third party proceedings remain separate actions until there is an order for their disposal together at trial, it is often the case that directions are ultimately given for the plaintiff’s claims against the defendant to be tried at the same time as the defendant’s claims against the third party, or for the trials to immediately follow one another. This depends on the nature of the third party proceedings, the relief sought by the defendant against the third party, and how they are related to the plaintiff’s action and claims made against the defendant.

12.  In any event, the Court should not have to speculate on the nature of the defendant’s claims against the third party, the relief sought by the defendant against the third party, or how the defendant’s claims against the third party may affect or relate to the plaintiff’s claims and action against the defendant.

13.  It is pertinent that the affidavit stating the particulars set out in Order 16 rule 2(2) is required, even after a defence is filed, to necessitate an application for leave being made to the Court. One would envisage that at least some of the particulars set out in rule 2(2) would have been apparent from the face of the defence filed before the application for leave to issue the third party notice.

14.  In the absence of the mandatory affidavit which sets out the requisite particulars to support the leave application, the Leave Summons is liable to be dismissed simpliciter.

15.  Even if the Defence and Counterclaim is to be considered, the Defendant’s position cannot be improved.

16.  According to the Writ and Statement of Claim (“SOC”), the Plaintiff is the subcontractor of building works and makes claims under a Sub-sub-contract made between the Plaintiff and the Defendant in respect of a residential development in Yuen Long (“YL Project”). In the SOC, the Plaintiff named Progressive Building and Foundation Company Limited (“Progressive”) as the main contractor of the YL Project, and the Plaintiff claims from the Defendant (the sub-sub-contractor) $1,826,808.20 as overpayment or as damages for defective works, breach of contract and delay in the completion of works.

17.  In its Defence, the Defendant denies that there was a “real” contract between the Plaintiff and the Defendant, and denies that it was a sub-contractor of the Plaintiff. It claims instead that it was the direct contractor of Progressive in respect of the YL Project, and that Progressive was responsible for delay in the completion of works in that project. By way of purported Counterclaim, the Defendant seeks from Progressive (in paragraphs 23 and 24) outstanding payment for the works it had carried out in the YL Project, in the sum of $3,520,067.29. The Defendant further claims that Progressive is liable to it for a further outstanding sum of $3,630,746.60, in respect of works carried out by the Defendant at Tung Chau Street in Tai Kok Tsui (“TC Project”), under a lump sum contract made between Progressive and the Defendant. The Defendant therefore counterclaims against Progressive for a total sum of $10,481,849.

18.  In the Notice which was issued against Progressive and filed on 28 November 2022, the Defendant simply claims and pleads that:

(1)  the Plaintiff has claimed against the Defendant pursuant to a Sub-Sub-Contract made between Progressive and the Plaintiff as stated in the SOC;

(2)  the Defendant claims against Progressive that it had failed to settle an outstanding balance in the sum of $3,630,746.60 (“Outstanding Balance”);

(3)  Progressive owes a payment liability to the Defendant on the Outstanding Balance; and

(4)  the Defendant is entitled to claim against Progressive the sum of $10,481,849, and interest on any amount found to be due to the Defendant.

19.  Even assuming that “the nature of the claim made” by the Plaintiff against the Defendant in this action is contained in the statement made in paragraph 18(1) above, the Notice does not contain any other particulars, of the stage which proceedings in the action have reached, the nature of the claim made and relief sought by the Defendant against Progressive as third party, and whether such relief or remedy is related to or connected with the subject matter of the Plaintiff’s action. Nor are there any particulars of the question or issue which is required to be determined - whether between the Plaintiff and the Defendant, or as between the Defendant and Progressive, and whether such question or issue related to or is connected with the original subject matter of the Plaintiff’s action. The Notice does not state, and it is therefore unknown, whether the Defendant is seeking an indemnity or contribution from Progressive in relation to the Plaintiff’s claim against the Defendant for $1,826,808.20 and damages, or whether there is some common issue to be tried in relation to the Plaintiff’s claim against the Defendant, and the Defendant’s claim against Progressive. Nor has the Defendant set out in the Notice any facts on which the Notice is based, whether in support of the indemnity asserted, or as to what is claimed to be the common issue between the two claims.

20.  All these have been left to the surmise of the Plaintiff, Progressive, and the Court – which cannot be permissible.

21.  Without the necessary particulars, the Court is not in a position to consider whether leave should be granted to the Defendant to issue, file or serve the Notice, and whether the Plaintiff’s action may be affected by the Defendant’s own claims in its proceedings against Progressive.

22.  The Plaintiff pointed out that even if indulgence should be given to the Defendant, by considering the Defence and Counterclaim filed and to read the Notice in the light of what is pleaded in the Defence and Counterclaim, in order to ascertain the particulars required under rule 2(2), and to identify the nature of the Defendant’s claims and the relation of such claims to the Plaintiff’s claims for relief in the action, such an exercise will show that the Defendant’s claim for relief in the Notice, for recovery of the sum of $3,630,746.60 from Progressive, has nothing to do with the Plaintiff’s claims relating to the YL Project and the Defence raised thereto.

23.  As is clear from the Counterclaim, the Defendant claims that Progressive failed to settle the Outstanding Balance for works it had carried out in the TC Project (paragraph 37 of the Counterclaim). This can be contrasted with what the Defendant claims to be outstanding for the YL Project, of a separate sum of $3,520,067.29 (paragraph 23 of the Defence). The Defendant claims in its own pleading that there was a separate subcontract made between Progressive and itself, for works to be carried out in relation to the TC Project (“TC Contract”). It is not pleaded in the Defence and Counterclaim that the Plaintiff was a party to the TC Contract, or was involved in the TC Project at all.

24.  It was only in the course of submissions made at the hearing on 25 May 2023, in answer to questions raised by the Court, that Counsel for the Defendant stated that what the Defendant claims is that it was entitled to an indemnity or contribution from Progressive in relation to the claims made by the Plaintiff against the Defendant in this action (which claims, according to the SOC, are based on the Sub-sub-contract made between the Plaintiff and the Defendant relating to the YL Project). However, Counsel accepted that this was not stated in the Notice itself. Nor can this be seen from the Defence and Counterclaim filed.

25.  Further, it is not apparent from the Notice what question or issue is asserted by the Defendant, as being for trial as between the Plaintiff, the Defendant and Progressive, on the facts as pleaded.

26.  Based on the contents of the Notice, I refuse leave to the Defendant to serve same and also refuse leave, if such is sought retrospectively, to issue the Notice. I am not satisfied that a prima facie case is made out to bring the matter within Order 16 rule 1(1)(a), (b) or (c).

Whether the designated parts of the Defence and Counterclaim should be struck out

27.  The Plaintiff seeks by its summons to strike out paragraphs 25 to 39, the word “Counterclaim” and the prayer for relief in the Defence and Counterclaim, on the ground that they disclose no reasonable cause of action, are scandalous, frivolous or vexatious, and may prejudice, and embarrass or delay the fair trial of the action. The Plaintiff further seeks to dismiss the Counterclaim.

28.  Paragraphs 25 to 39 of the Defence sets out the TC Contract made between Progressive and the Defendant in relation to the TC Project, pleaded to be for a lump sum of $9 million. As pointed out above, there is no claim and no pleading whatsoever on the Defendant’s part, that the Plaintiff was a party to, or was in any way involved in, the TC Contract and the TC Project. The paragraphs, and the purported counterclaim for the Outstanding Balance said to be due from Progressive for the works carried out in the TC Project, have no relevance at all to the Plaintiff’s claims made against the Defendant in this action. Counsel for the Defendant made no real attempt to justify the relevance and retention of these claims set out in the Defence and Counterclaim, save to assert that somehow the Plaintiff was a nominee and/or not a real party to the Sub-sub-Contract, and/or that Progressive was the real party, thus suggesting that the Defendant could look to Progressive for relief in relation to both the YL Project and the TC Project. Unfortunately, Counsel had to concede that there is no pleading at all to such effect, in either the Defence and Counterclaim, or the Notice.

29.  In the premises, it is clear that the parts of the Defence and purported Counterclaim have no relevance to the claims made by the Plaintiff in the SOC, and the Counterclaim discloses no reasonable cause of action on the part of the Defendant against the Plaintiff, and should be struck out on that ground. The irrelevant claims made by the Defendant are also frivolous or vexations, and to include them in the pleadings in this action would definitely prejudice, embarrass and delay the fair trial of the action against the Defendant.

30.  I cannot understand the relevance of the Defendant’s references to the decisions in Super Cruise Ltd v Cosimo Borrelli & Ors [2018] HKCFI 434 and 1854. What the Plaintiff seeks in the present case to do by the Strike Out Summons is to strike out parts of the Defence and Counterclaim of the Defendant. It is not seeking to strike out the Notice. It is trite, that a Defence and Counterclaim is a pleading, liable to be struck out under Order 18 rule 19 if it does not disclose a reasonable defence or a reasonable cause of action by the Counterclaim.

31.  Having been struck out, there is no counterclaim to be dismissed and it is not necessary to grant the order sought in paragraph 2 of the Strike Out Summons.

Costs

32.  Having succeeded in both summonses, it follows that the Defendant should pay to the Plaintiff the costs of, incidental to and occasioned by the 2 summonses (including the costs reserved), with certificate for counsel. An order nisi is made to such effect, to become absolute unless application for variation is made within 14 days.