TELFORD DEVELOPMENT LTD v. SHUI ON CONSTRUCTION CO LTD

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JUDGMENT

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Clough, J.A.:

1. This is the judgment of the court.

2. Shui On Construction Company Limited ("Shui On"), the defendant in this action ("the Telford action") in the construction list,appeals against the peremptory order made on the 29th September 1989 by Mayo J. whereby he ordered that unless Shui On pleaded within 7 days of the date of the order to paragraphs 10 and 11 of the statement of claim of the plaintiff, Telford Development Limited ("Telford"), the defence should be struck out and judgment entered against Shui On with costs. The order has not been complied with but, on the 3rd October 1989, upon the application of Shui On, Mayo J. extended the time for compliance with the order until the hearing of this appeal. The pleading issue raised by the appeal has a complex background.

3. The Telford action is the sequel to an earlier action ("the M.T.R. action"), also pending in the construction list, brought by the Mass Transit Railway Corporation("M.T.R") against Telford and two other defendant companies. In the MTR action MTR claims against Telford damages for breach of contract and negligence in connection with the design, construction and completion of 21 blocks (blocks A to U) of flats erected at Telford Gardens in Kowloon by Telford pursuant to a contract ("the MTR contract") dated the 10th September 1976.

4. The MTR contract is not a standard building contract. It was made between MTR on the one hand and Telford and the two other defendants in the MTR action. The latter companies had formed Telford as the vehicle for their part of the project and were made parties to the MTR contract as guarantors of Telford's obligations. The contract provided for the construction of the 21 blocks of fiats comprising 3 million square feet by Telford at its own cost on a 25 acre concrete slab provided oy MTR over MTR's principal railway depot at Kowloon Bay. The flats were to be constructed by Telford for sale to the public by Telford  as MTR's sole agents and the proceeds of sale were to be divided between Telford and MTR in percentages to be calculated in accordance with a stipulated formula.

5. Clause 23 provided that the parties to the contract were not partners and stipulated that it was to be made clear to all contractors and others that Telford was acting in its own name and that no redress was to be obtained from MTR for the acts or omissions of the other parties to the MTR contract.

6. By clause 7 of the MTR contract Telford undertook to build the blocks -

7. However the Third Schedule was expressed only to contain an outline specification as a standard for one typical block and it was contemplated that a detailed specification would follow. By clause 8(a) Telford was required at its own expense to cause the nominated architect to prepare all necessary plans for the construction and completion of the blocks. The plans required the approval of MTR before being submitted by Telford to the appropriate authorities for their approval.

8. Under clause 8(f) Telford was required to call for tenders for the actual construction and completion of the blocks from class C Hong Kong Government approved building contractors and others approved by Telford and MTR. The building works.contracts were required to be in the form set out in the Fourth Schedule to the MTR contract with such modifications as Telford and MTR might agree. Clause 8(f) concluded as follows:

9. By an agreement ("the Telford contract") dated the 11th December 1980 made between Telford as.employer and Shui On as main contractor, Telford employed Shui On to construct 11 of the 21 blocks comprised in the MTR contract, namely blocks K to U ("the Shui On blocks"). The contract price was$233.4 million. The Telford contract incorporated the Hong Kong Standard Form of BuildingContract with Quantities, 2nd edition, 1976 (May 1979 revision) with supplementary conditions and it included inter alia a specification in terms corresponding (almost exactly), in relation to the concrete work in issue in both actions, to the outline specification in the Third Schedule to the MTR contract. The architect's final certificate was issued under the Telford contract on the 2nd February 1983.

10. On the 17th June 1986 MTR issued and served its writ in the MTR action claiming damages against Telford for breach of the MTR contract and negligence arising out of the allegedly defective concrete work in the 21 blocks. On the 3rd April 1987, by which time no statement of claim had been issued in the MTR action, Telford issued its writ in the Telford action claiming against Shui On damages for breach of the Telford contract and negligence arising out of the allegedly defective work in the Shui On blocks. This writ followed the same pattern as MTR's writ in the MTR action but also included a claim against Shui On for indemnity against all claims made against Telford in the MTR action or alternatively contribution to the full extent of MTR's claims in that action.

11. Telford did not serve its writ on Shui On until the 30th March 1988, by which time the pleadings in the MTR action were closed. On the 14th June 1988 Shui On applied for a stay of the Telford action in reliance on the machinery contained in clause 136 of the Telford contract for the resolution of disputes by the Architect and ultimately by arbitration. Shui on's application was not determined until the 21st February 1989 when Godfrey J. dismissed it on terms, in substance, that Telford undertook to seek to recover against Shui On only such damages as might be recovered by MTR from Telford in the MTR action, and that if, upon service of the statement of claim in the Telford action, Shui On found that the allegations therein gave ground for re-opening any decision or certificate of the Architect, then Shui On should be at liberty to re-apply for a stay of the Telford action.

12. The statement of claim in the Telford action was served on the 29th March 1989. By this time the MTR action was in process of discovery.On the 17th April 1989 leave was given to set down that action. The pattern of the statement of claim in the Telford action appears also to have been substantially based upon the statement of claim in the MTR action in so far as Telford relies on breach of the Telford contract, negligence and breach of statutory duty by Shui On.

13. Thus the scheme of MTR's statement of claim is to allege (1) in paragraph 3 that under the MTR contract Telford was obliged to construct and complete the 21 blocks in accordance with specified requirements of the outline specifications relating to concrete work, (2) in paragraph 4 that the MTR contract included various implied terms and (3) in paragraph 5 that Telford owed MTR a duty to construct the 21 blocks with reasonable skill and care and in accordance with all relevant statutory requirements and regulations. In paragraph 6 it is alleged against Telford that in breach of these alleged duties it constructed the blocks with defects which are particularised by reference to numerous items of concrete work.

14. On the other hand Telford's statement of claim in the Telford action pleads in paragraphs 1 and 2 the MTR contract and then the Telford contract, describing the Telford contract inappropriately as a sub-contract, and alleges that Telford, having contracted under the MTR contract to build the 21 blocks, sub-contracted the construction of the Shui On blocks to Shui On under the Telford contract. Paragraph 3 pleads the specifications in the Telford contract relating to concrete work which correspond (they are almost the same) with the outline specifications pleaded in paragraph 3 of MTR's statement of claim in the MTR action. In paragraph 6 it is pleaded that the same specifications were contained in the MTR contract. Paragraph 5 of Telford's statement of claim pleaded that the Telford contract included various implied terms. The implied terms pleaded are the same as those pleaded in respect of the MTR contract in paragraph 4 of MTR's statement of claim. Paragraph 7 of Telford's statement of claim pleaded Shui On's duty to construct the. Shui on blocks with reasonable skill and care and in accordance with all relevant statutory requirements and regulations. This paragraph was in the same terms mutatis mutandis as paragraph 5 of MTR's statement of claim.

15. Breach of its alleged duties by Shui on is pleaded in an indirect manner in Telford's statement of claim. Thus, in paragraph 9 it is pleaded that in the MTR action MTR is alleging against Telford breach of the MTR contract (by implication the relevant preliminary specifications in the MTR contract which are also included in the Telford contract), breach of the implied terms included in the MTR contract (and also in the Telford contract) and negligence and/or breach of statutory duty in that the 21 blocks were allegedly defectively constructed. The particulars of the defects alleged by MTR in paragraph 6 of its statement of claim are then pleaded in paragraph 9 of Telford's statement of claim.

16. Paragraphs 10 and 11 of Telford's statement of claim plead that Telford is denying MTR's claims but that if Telford is liable to MTR in respect of them, then any defects in the Shui On blocks constituted or were the result of breaches by Shui on of the terms of the Telford contract pleaded in paragraphs 3 and 5 or, alternatively render Shui On liable to Telford for negligence and/or breach of statutory duty. As regards negligence and breach of statutory duty paragraph 11 relies on the alleged defects particularised in paragraph 9. It will be seen that paragraph 10 is related to paragraphs 3, 5, 6 and 9. Paragraph 11 is related to paragraphs 7 and 9. This aspect of the pleading is continued by paragraph 14 which pleads that to the extent that Telford is found liable to MTR in any sum in respect of alleged defects in the Shui On blocks such sum constitutes loss and damage to Telford caused by Shui On's breach of contract and/or duty as previously pleaded. Paragraph (2) of the prayer claims damages under this head.

17. So far, the analysis of Telford's statement of claim indicates that Telford is simply seeking to pass on to Shui On the claims made by MTR against Telford in respect of the defects in the Shui On blocks particularised in paragraph 9 of Telford's statement of claim, the proposition being, rightly or wrongly, that if Telford is liable to MTR under the MTR contract in respect of defects in the Shui On blocks, then Shui On must be liable to Telford under the Telford contract. However if it should be held that the concrete work was defective as alleged in MTh's statement of claim and that Telford is liable to MTR's claims, it does not by any means necessarily follow, as Mr. Kaplan, for Shui On, stressed, that Shui On will therefore be liable in damages to Telford.

18. The present appeal is only concerned with the particulars relating to paragraphs 10 and 11 of Telford's statement of claim, but we mention for the sake of completeness that Telford's claim is also put on a wider footing in its statement of claim, in reliance upon other matters which it is not necessary to specify here. Pursuant to the order made by Godfrey J. on the 21st February 1989 on the stay application, paragraph 15 of Telford's statement of claim limits its claim to such damages as it may be ordered to pay MTR as a result of Shui On's failure to perform its obligations under the Telford contract.

19. On the 15th May 1989 Shui On issued a summons for directions concerning several matters in the Telford action, namely the pleadings, the conditional liberty granted by Godfrey J. to Shui On to apply to stay the action, and to preliminary issues which Shui On sought to have determined before the trial. Annexed to the summons was a request by Shui On for further and better particulars of paragraphs 10 and 11 of Telford's statement of claim.

20. On the 19th May Sears J. made an order on the summons directing Telford to provide further and better particulars of paragraphs 10 and 11 of the statement of claim pursuant to Shui On's request annexed to the summons within 42 days. The judge directed Shui On to file a defence within 7 days of the date of his order but without any requirement to plead to paragraphs 10 and 11 of the statement of claim and without prejudice to the liberty granted to Shui on by the same order to apply, within 28 days of the provision of further and better particulars of paragraphs 10 and 11 of the statement of claim, for a stay of the action to arbitration. As to paragraphs 10 and 11of the statement of claim, Shui On was directed to plead to them within 28 days of the provision of the further and better particulars pursuant to the order. The question of preliminary issues was adjourned generally with liberty to restore. The judge also gave liberty to apply generally.

21. On the 27th May Shui On filed its defence which contained the following paragraph relating to paragraphs 10 and 11 of Telford's statement of claim:

22. The last day for Telford to provide its further and better particulars of paragraphs 10 and 11 of the statement of claim in compliance with the order of Sears J. was the 30th June 1989. The correspondence indicates that the particulars were despatched by hand on that day (a Friday) by Telford's solicitors but were not acknowledged by Shui On's solicitors until the following Monday, the 3rd July. No point was taken either below or on appeal regarding Telford's compliance with the order to provide the particulars by the 30th June. However if Shui On is taken to have had 28 days from the 3rd July (when it acknowledged service of the particulars) to plead to paragraphs 10 and 11 of the statement of claim, the last day for compliance was the 31st July which was the last day of the Spring Sittings.

23. Shui On did not plead to paragraphs 10 and 11 of  the statement of claim by the 31st July 1989 and, to date, it has not done so. On the 1st August Telford's solicitors wrote to Shui On's solicitors pointing out that time had expired for Shui on to plead to the relevant paragraphs and threatening to issue a summons if no satisfactory reply was received by the 4th August. No reply was received. On the 9th August Telford therefore issued a summons applying for an order that unless Shui On pleaded to paragraphs 10 and 11 within 7 days of the order the defence be struck out and judgment entered for the plaintiff.

24. This prompted a letter from Shui On's solicitors dated the 4th September stating that they were restoring their summons dated the 15th May (in respect of which their application for trial of preliminary issues had been adjourned) and that they would in any event oppose Telford's summons on the basis that Telford's particulars were both deficient and inadequate. On the 13th September Shui On issued a summons to strike out parts of Telford's particulars to paragraph 11 of the statement of claim on the ground that they amounted to an attempt to add new causes of action after the expiration of the limitation period.

25. The evidence filed by the parties' solicitors in relation to the relevant summonses indicates their understandable predominant preoccupation with the important question whether the MTR and Telford actions should be heard together (which is what Telford now wanted despite its election not to join Shui On as a third party in the MTR action) or whether the trial of preliminary issues should be ordered in the Telford action which could well result in further delay of a trial in that action and expose Telford to the risk of being held liable in damages to MTR in the MTR action (which is listed for trial on the 12th September 1990) without the opportunity of immediate recourse to Shui On to pass on its liability.

26. Thus Mr. Hartley, Shui on's solicitor, made an affidavit of a forensic character in support of Shui On's application for the trial of various preliminary issues in the Telford action. He then went on to deal with Telford's summons applying for an "unless" order, deposing that for various reasons the particulars furnished by Telford were deficient and defective and asserting that it would be some months before Telford could properly particularise its claims against Shui On. After emphasising that the preparation of Shui On's defence would require consideration of a substantial volume of documents and that the costs involved would nave been incurred unnecessarily if the proposed preliminary issue were resolved in Shui On's favour, Mr. Hartley submitted that Shui On should not be required to incur the costs of preparing a defence to paragraphs 10 and 11 of Telford's statement of claim until the relevant preliminary issue had been resolved.

27. As to Shui On's strike out summons, Mr. Hartley submitted in his affidavit that it would be best dealt with at the same time as the preliminary issue. He added that"In view of this and the limited time available on 29th September 1989 [when the relevant applications were due to be heard] the parties have agreed that the summons be adjourned." The words in square brackets are ours.

28. In a subsequent affidavit on behalf of Telford its solicitor Ms. Day deposed, likewise in forensic terms, as to the reasons why Telford contended that the MTR and Telford actions should be consolidated and why the trial of the Telford action should not be delayed by the trial of preliminary issues and likely subsequent appeals. In the final paragraph of her affidavit Ms. Day denied that Telford's particulars of paragraphs 10 and 11 of the statement of claim were deficient and contended inter alia that Shui On was seeking to use the complaint about particulars as an excuse for not serving a defence.

29. On the 29th September 1989, on what seems to have been a 45 minutes appointment, Mayo J. was effectively faced with Shui On's restored application for the trial of preliminary issues and Telford's application for an "unless" order against Shui On, the parties having agreed to the adjournment of Shui on's application to strike out part of Telford's particulars. An agreed note of the judge's ruling at the end of the hearing is in the following terms:

30. Subsequent to the giving of notice of appeal by Shui On on the 3rd October 1989, Mayo J. made an order on the 17th November 1989 dismissing Telford's application for consolidation of the MTR and Telford actions and granting Shui on's application for trial of preliminary issues.

31. It is against this complex background that this appeal has had to be considered after being inappropriately set down for an afternoon hearing and inevitably overrunning.

32. By its notice of appeal Shui On raises three grounds of appeal, contending that the judge misdirected himself in holding that:

33. It seems to us that the central question arising on this appeal and reflected in Shui On's grounds, is whether, as Mr. Scott for Telford contended, the order of Sears J. is to be construed as a time order which.could be complied with by Telford by serving, within the stipulated period, particulars of paragraphs 10 and 11 of the statement of claim which were made in good faith, could be fairly entitled "particulars" and were not illusory: c.f. Reiss v. woolf [1952]2 QB 557 (C.A.) where this test was adopted in relation to the construction of a default order. In that case Devlin J. and the Court of Appeal applied the dictum of Greene L.J. in Abalian v. Innous [1936] 2 ALLER 834 at p.838 that "any order dealing with the dismissal of an action unless something is done should be absolutely and perfectly precise in its terms."

34. The order of Sears J. was not a default order but, in our opinion, the direction in the order requiring Telford to provide further and better particulars of paragraphs 10 and 11 of the statement of claim within 42 days pursuant to the request of Shui On, is to be construed, in all the circumstances, (in the same way as any other direction to serve a pleading within a stipulated period), as dealing with the time of compliance rather than with the mode of compliance.

35. We have borne in mind that, as Mr. Kaplan rightly emphasised, Sears J. (whose order was not appealed by Telford) had applied order 18 rule 12(5) and directed that Shui On was not required to plead to paragraphs 10 and 11 of the statement of claim until after provision of the particulars. We have also borne in mind Sears J.'s direction giving Shui on liberty to apply for a stay of the action to arbitration within 28 days of the provision of the particulars. we accept that Shui On will not be in a position to know whether it will have any ground for renewing its application for a stay until Telford has properly pleaded its case.

36. However the fact remains that the order of Sears J. was expressed to be definitive as to the time for the provision of the particulars and not as to their adequacy. We can see no material distinction between the order of Sears J. and any other order giving directions regarding a sequence of pleadings in an action. When a court directs that a plaintiff shall file a statement of claim within 10 days and that the defendant is to file a defence within 10 days thereafter, the court contemplates that the statement of claim filed in compliance with the order will Comply with the rules relating to pleading, but this does not mean that the order is to be construed as meaning that if the defendant considers he cannot plead to the statement of claim because it is deficient in particulars he need not comply with the direction requiring him to file his defence.The proper course is to apply to the court for an extension of the time stipulated in the order for filing the defence, pending the resolution of the issue regarding particulars of the statement of claim. We apprehend that Mayo J. was adopting this approach when he was recorded as suggesting that Shui On had flouted the order of Sears J.

37. In our opinion Mr. Kaplan's argument was not adopting the right test when treating the issue as being one concerned with the adequacy of Telford's particulars. It seems to us that it was only if the particulars were not genuine particulars and were illusory that Shui On could have disregarded the order of Sears J. with impunity. If that was not the position then Shui on had two courses available to it when it contended that the particulars were deficient and inadequate. The first option would have been to apply for an extension of the time stipulated in Sears J.'s order for filing Shui on's defence to paragraphs 10 and 11 of the statement of claim to enable it to apply for further and better particulars and to strike out in accordance with its pending summons. The second option would have been to comply with the order and plead to paragraphs 10 and 11, (even If the pleading were confined to the formal reiteration of the already Pleaded denial) and at the same time pursue applications for further and better particulars and to strike out under the pending summons.

38. We are not prepared to hold that the judge should have treated the relevant particulars as illusory and not genuine particulars. In arriving at this conclusion we have felt constrained to avoid too close an examination of the particulars in case this should prove embarrassing in subsequent proceedings where the adequacy of the particulars may be in issue.

39. We accept that the schedule of particulars provided by Telford in relation to paragraph 10 of the statement of claim consists almost entirely of a re-arrangement of matters already pleaded, save for a new reference to specified blocks in the second column of item   E in the schedule. We also accept that, as regards paragraph 11, the particulars of statutory requirements in Replies (i)B, (ii) B and (iii) B seem to add nothing new that was not already pleaded. However in relation to the alleged common law duty of care and in relation to the alleged breach thereof referred to in Replies (i)A and(ii)A there is appreciable new matter, albeit followed by very general allegation in Reply (iii)A together with a confession of inability to specify the particular duty or duties in respect of which Shui On is alleged to be in breach.

40. In our opinion, bearing in mind that Telford is still in the process of obtaining full particulars of MTR's claim against it in the MTR action and therefore has genuine unavoidable problems in furnishing detailed particulars in the Telford action, the particulars which it has furnished in compliance with the order of Sears J. are genuine and not illusory, whatever may be the extent of their inadequacy.

41. Furthermore, Shui On has applied, by its summons issued on the 13th September 1989, to strike out the particulars given by Telford under Replies (i) A, (ii)A and(iii) A relating to paragraph 11 of the statement of claim. There is a genuine issue between the parties on this matter which has not been resolved by adjudication. Having elected to have adjudication of this issue adjourned in other proceedings it seems to us that Shui On should not be heard to say in these proceedings that the particulars concerned are illusory in the sense that they should be struck out.

42. We are therefore not prepared to find that the judge misdirected himself when holding that under the circumstances Shui On was obliged to plead to paragraphs 10 and 11 of the statement of claim. We consider that he was right in concluding that it would be possible for Shui On to plead to those paragraphs as matters stood. Furthermore the evidence of Mr. Hartley was, in our opinion, indicative more of a wish to defer pleading until after the disposal of the preliminary issues rather than of genuine inability to plead. The apparent silence of Telford in the correspondence between the 3rd July, when they acknowledged the particulars, and the 4th September 1989, when they first complained about the inadequacy of the particulars, is significant in this respect.

43. We are unable to accept Mr. Kaplan's contention that the judge misdirected himself and made too wide an order when directing that in default of pleading to paragraphs 10 and 11 of the statement of claim within the stipulated period the defence should be struck out and judgment entered for Telford. Having decided that Shui On were required to plead in compliance with the order of Sears J. and that it was possible for Shui On to plead to fundamental claims of Telford, the judge was fully entitled to assert the authority of the court by making a draconian peremptory order which Shui On was capable of complying with, leaving it and its advisers to face the dire consequences of deliberate non-compliance.

44. On the 3rd October 1989 Mayo J. was surprisingly only asked to extend the period for compliance with his order to the hearing of this appeal. However, Mr. Scott for Telford informed this court that Telford's only real purpose in obtaining the peremptory order was to get Shui On to plead so that the proceedings could continue. He made it clear that Telford would not oppose a further appropriate extension if it were sought by Shui On.

45. Accordingly we dismiss this appeal. In the end it seems to have been very much a storm in a procedural tea-cup resulting from Shui On's decision not to comply with the order of Sears J. and not to apply for a protective extension of time for compliance with that order. However this has resulted inter alia in an unsuccessful appeal and consequential delay. We therefore make an order nisi awarding the costs of the appeal to Telford.

46. It is to be hoped that the parties can agree the terms of a provision in our order for the extension of the period for compliance with the order of Mayo J. If not Shui On will have to apply to this court before the order on this appeal can ne perfected.