BESPARK TECHNOLOGIES ENGINEERING LTD v. GOLDEN CONCEPT DEVELOPMENT LTD

HCA 1433/2019

[2021] HKCFI 839

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1433 OF 2019

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HCA 2238/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2238 OF 2019

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(Heard Together)

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D E C I S I O N

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1.  This appeal concerns two actions, namely, HCA 1433/2019 (“Action 1”) and HCA 2238/2019 (“Action 2”). The parties are identical in both actions. In these actions, the Plaintiff (“Bespark”) sues the Defendant (“Golden Concept”) for payment for electrical work done and material supplied under a residential development at Kau To Shan (“Project”).

2.  Bespark and Golden Concept both applied unsuccessfully before a Master for summary judgment and hence this appeal. Bespark’s application concerned its claim in Action 1 and Golden Concept applied for summary judgment for its counterclaim in both Actions. 

3.  In Action 1, Bespark says that it is entitled to summary judgment in respect of the sum of HKD9,670,000 certified as due to the nominated electrical sub-contractor under Interim Payment Certificate No 28 (“IPC 28”). In Action 2, Bespark makes a claim for the balance of sum allegedly due to it on 24 October 2019 under a nominated sub-contract (consisting of its extension of time and variation claims).

4.  Golden Concept counters that it should be granted summary judgment under both Actions for: (i) specific performance by Bespark in executing the formal sub-contract documents under seal (“Sub-Contract”); and (ii) declaration that Bespark has no right to pursue any claim in the Actions against it.

5.  There are, therefore, 3 appeals before this court, namely, Bespark’s summary judgment appeal and two such appeals by Golden Concept.  There is much overlap in the appeals. 

Background

6.  The following facts are not in disputed.  Golden Concept is the developer of the Project.  For the purpose of the Project, a main contract was made between Golden Concept as Employer and Paul Y Construction & Engineering Co Ltd (“Paul Y”) as Main Contractor.  Bespark was nominated by Golden Concept as nominated sub-contractor for the electrical work (“NSC”) in the following circumstances.

7.  On 1 September 2016, Bespark was invited to submit a tender for the electrical installation nominated sub-contract for the Project.  On 22 September 2016, Bespark submitted the Form of Tender together with other tender documents to Golden Concept.  Clause 6 of the Form of Tender stated:

“Unless and until a formal Agreement is prepared and executed this Tender, together with the written acceptance by the Main Contractor or the Employer on behalf of the Main Contractor subject to Clause 4 hereof shall constitute a binding contract between me/us and the Main Contractor. I/We understand that the final Agreement shall be executed under seal.”

8.  Following further tender discussions and correspondence, the Architect on behalf of Golden Concept issued a Letter of Nomination dated 12 December 2016 (“Letter”) to Bespark[1].  Bespark confirmed its acceptance of the terms and conditions of the Letter by signing the same on 21 December 2016.  Accordingly, a binding contract came into being. 

9.  However, the parties disagree on who were (and are) the contracting parties to the Letter.  Bespark’s case is that such parties were itself and Golden Concept, whereas the latter says that it was between Bespark and Paul Y.

10.  The Letter contained a caption headed “Electrical Installation Nominated Sub-Contract For [the Project]”.  It started off as follows:

“On behalf of the Employer … we are pleased to confirm that the tender submitted by you for the captioned is acceptable and that it is the Employer’s intention to nominate you as the Sub-Contractor for this Sub-Contract … The award of the Sub-Contract is based on the terms and conditions as stated in the Tender Documents and Tender Drawings together with the following conditions:-”

11.  Clauses 5 and 9 of the Letter stipulated as follows:

“5. [Bespark] will be required to enter into a [Sub-Contract] with [Paul Y], … [Bespark] shall cooperate with [Paul Y] in the execution of [its] works and [Bespark] shall be required to comply with and organize [its] works to suit [Paul Y’s] programme in all aspects.”

“9. [Golden Concept] shall notwithstanding anything in this Contract be entitled to pay directly the amounts stated as due to [Bespark] concerned in any certificate issued under clause 30 of the Conditions of Contract and deduct the same from any sums due or to become due to [Paul Y] under the Contract. Neither the existence nor the exercise of the foregoing powers nor anything else contained in the Conditions of Contract shall render [Golden Concept] in any way liable to [Bespark].”

[emphasis added]

12.  It should be noted that the same clause 9 appeared in the draft [Sub-Contract] as SCC-23(9). 

13.  The last page of the Letter contained the following:

“Pending the execution of the [Sub-Contract] between you and the Main Contactor, your tender and the documents / correspondences as listed in item 16 above and this [Letter] shall form a binding agreement on the Employer’s part to nominate you as the Sub-Contractor for the captioned Sub-Contract works and on your part to accept such nomination. You should proceed with all necessary preparatory work including shop drawings and material submission, so as not to cause any delay to the completion of the project.

You shall perform your obligations under this Sub-Contract as if the same has been entered into and has taken effect from the date of this [Letter].  It is agreed that the Employer shall be entitled to enforce your performance of such obligations as if the Employer were the Main Contractor.  Upon execution of the [Sub-Contract] between you and the Main Contractor, you shall release and discharge the Employer from all claims and demands whatsoever in respect of this [Letter] and such liability shall be transferred to the Main Contractor as if the Main Contractor had accepted this tender in place of the Employer.”

14.  By a letter dated 14 December 2016, Bespark provided a Personal Guarantee of Mr Wong Ping Kuen, who was its controlling shareholder and director, to Golden Cencept.  Recital C of that document stated:

“… And whereas by the [Letter] issued by the Architect to [Bespark] … (“the [NSC]”) on 12th December 2016, the [NSC] entered into [the Sub-Contract] … with [Paul Y] to carry out the Sub-Contract Works forming part of the Works as described in the [Sub-Contract].”

[emphasis added]

15.  On 10 October 2017, the Quantity Surveyor of the Project (“QS”) provided the draft [Sub-Contract] to Bespark for comments.  Bespark confirmed in reply dated 20 October 2017 that: “It is OK”.

16.  At all material times, Bespark and Paul Y conducted themselves as NSC and Main Contractor, including the submission of interim payment applications by the former to the latter.  Such applications (including those of other sub-contractors) were included in the interim payment applications of Paul Y to the Architect for certificates of payment. Subsequently, interim payment certificates were issued by the Architect to Paul Y for payments to it and the nominated sub-contractors (including Bespark).

17.  For payment to Bespark, Golden Concept had been exercising its power under Clause 9 of the Letter to pay it directly based upon the Architect’s certificates and Bespark’s invoices issued to it which referred to the relevant ICP.  Such conduct continued for some 2 ½ years until ICP 27 (dated 8 January 2019).  In short, the payment suddenly ceased.  ICP 27 was only paid on 16 August 2019 after the writ in Action 1 was issued.

18.  ICP 28 remains unpaid by Golden Concept, whether to Bespark or Paul Y.  By a letter from the Architect to Paul Y dated 7 March 2019 in respect of ICP 28, the latter was advised:

“With reference to your submitted interim payment No. 28 application … we enclose herewith our Certificate of Payment No. MC-28 dated 7 March 2019, certifying the payment in the amount of HK$141,490,900.00 which is inclusive of an amount of HK$83,860,000.00 for the Main Contractor and an amount of HK$57,630,900.00 for Nominated Sub-Contractors which the Employer would pay directly to the corresponding Sub-Contractors.”

[emphasis added]

19.  It can be seen from the accompanying breakdown provided by the QS that the sum due to Bespark (HK$9,670,000) was included in the HK$57,630,900.00.

20.  On 3 July 2018, the QS provided the Sub-Contract to Paul Y for “further action”.  It is apparent that the Sub-Contract was compiled based on, inter alia, the Tender documents and post-tender correspondence, including the Letter.  By an email dated 6 July 2018, Paul Y requested Bespark to collect and execute the Sub-Contract.

21.  By an email dated 4 December 2018, Paul Y again requested Bespark to collect and execute the Sub-Contract. 

22.  On about 8 August 2019, the writ in Action 1 was issued.  By an email dated 2 September 2020, Paul Y asked Bespark to collect the Sub-Contract within the week. 

23.  By letter dated 8 September 2020 to Golden Concept, Paul Y confirmed that it “remains ready and willing to execute the [Sub-Contract]”.

Bespark’s summary judgment application

24.  In respect of its summary judgment application, Bespark says that Golden Concept had elected to make payment of the sum of HKD9,670,000 certified under IPC 28 directly to it instead of including such payment in that made to Paul Y.  Golden Concept cannot backtrack and refuse to pay Bespark.

Golden Concept’s defence

25.  Putting aside the technical legal arguments, it should be said at the outset that there is no substantive merit in Golden Concept’s case as to why it has failed to abide by its promise to pay Bespark the sum certified as due under IPC 28. 

26.  The half-hearted effort by Golden Concept to say that the certification had gone badly wrong and the sum in fact due to Bespark had been radically revised downwards in IPC 30 is wholly lacking in particulars.  Such deficiency lends much weight to Bespark’s suggestion that Golden Concept had put pressure on others to make the revision. 

27.  The evasion of payment obligation by putting up technical obstacles to Bespark reflects poorly on the commercial morality of Golden Concept. 

28.  However, this court is bound by the law and must examine the legal viability of Bespark’s claim. 

Bespark’s claim in Action 1

29.  Bespark’s claim against Golden Concept is based on contract.  However, its pleaded case, set out in paras 3 to 4A of the Amended Statement of Claim (“ASOC”) (largely repeated in Action 2), is not easy to understand.  On the other hand, it is tolerably clear that Bespark asserts that it was (and is) the NSC of the Project pursuant to the Letter.

Parties to the contract constituted by the Letter

30.  It is common ground that the intention was that the Letter would be replaced by the Sub-Contract to be entered into by Bespark and Paul Y.  Pending the making of the same, the Letter would be binding as it expressly stipulated. 

31.  However, Paul Y was not a party to the Letter. There was nothing in the Letter which suggested that Paul Y was bound by it pending the execution of the Sub-Contract.  Hence, Golden Concept’s contention that the Letter constituted a contract between Bespark and Paul Y is unjustified.

32.  On the other hand, although the Letter stated[2] that it “shall form a binding agreement on [Golden Concept’s] part to nominate [Bespark] as the Sub-Contractor … and on [Bespark’s] part to accept such nomination”, it is clear that the obligations on Bespark’s part extended to “perform [its] obligations under this Sub-Contract as if the same has been entered into and has taken effect from the date of this [Letter]”.

33.  Further, the Letter provided that [Golden Concept] “shall be entitled to enforce [Bespark’s] performance of [the obligations under the Sub-Contract] as if [Golden Concept] were the Main Contractor”. 

34.  It is reasonably clear that the references in the Letter to “Sub-Contract” meant the one to be entered into between Bespark and Paul Y. 

35.  In the premises, it is an inescapable conclusion that the parties to the Letter were Bespark and Golden Concept. 

36.  The next issue for consideration is the failure by Bespark to execute the Sub-Contract. 

Specific performance

37.  First of all, Bespark’s pleaded case that after the Letter was accepted by it, Golden Concept did not caused or instruct Paul Y to enter into a formal sub-contract with it[3] flies in the face of the undisputed documentary evidence referred to in paras 15 and 20 to 22 above. 

38.  I agree with Mr Tsang, who appeared for Golden Concept, that the 2 answers advanced by Bespark to resist the counterclaim for specific performance are misconceived. 

39.  Firstly, the contention that the Sub-Contract is not one amenable to specific performance is a conflation of this remedy in the narrow sense with its wider sense.  It was held in Giles v Morris [1972] 1 WLR 307, per Megarry J at 316 F-G:

“The distinction between an order to perform a contract for services and an order to procure the execution of such a contract seems to me to be sound both in principle and on authority. I do not think that the mere fact that the contract to be made is one of which the court would not decree specific performance is a ground for refusing to decree that the contract be entered into.”

See also Spry on The Principles of Equitable Remedies, 9^th edn, pp 53-54.

40.  It was submitted by Mr Yau, who appeared with Mr Wong for Bespark, that the work in question had been completed (the certificate of practical completion for the Main Contract works was granted on 28 August 2020) and the remaining obligation is that of Golden Concept to pay for the work done.  In such circumstances, it is difficult to understand the basis for Bespark’s first contention. 

41.  Further, I am unable to see anything unfair or inequitable to hold Bespark to the bargain set out in the Letter.  Indeed, it is common ground that Bespark and Paul Y had been conducting themselves as if they had entered into the Sub-Contract (see further below). 

42.  Secondly, para 4 of the Amended Reply and Defence to Counterclaim of both Actions pleaded a case of waiver and/or estoppel:

“Paragraph 2 is admitted to the extent that the [Letter] expressly provided under clause 5 that [Bespark] shall enter into a [Sub-Contract] with [Paul Y]. It is averred that [Golden Concept] has however waived the rights of, and/or, is estopped from, insisting the said requirement. There was significant delay between [Bespark’s] commencement of work in October 2016 and [Paul Y’s] first purported attempt of inviting [Bespark] to collect and execute a [Sub-Contract] in July 2018. During the period, [Golden Concept] continued to make interim payments to [Bespark] in full amount as certified by the QS. The course of conduct adopted by [Golden Concept] was inconsistent with the exercise of its said rights, and led [Bespark] to believe that [Golden Concept] no longer intended to insist execution of [the Sub-Contract] between the former and [Paul Y].”

43.  To begin with, the allegation of delay is factually inaccurate because of the disregard of the emails exchanged in October 2017.  Further, I cannot see why the making of interim payments to Bespark by Golden Concept was inconsistent with the insistence on a Sub-Contract. 

44.  I agree with Mr Tsang that whatever delay there might have been, there was no clear and unequivocal promise by Golden Concept to Bespark that it would not enforce its contractual right.  In Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, at §59, Ribeiro PJ held:

“While the promise need not be express, the meaning of the promise conveyed by the promisor’s words or conduct must be clear and unequivocal. He must make it clear that he is promising not to enforce the relevant rights or powers. This message must be conveyed with a clarity similar to that needed to vary a contract. Whether there is sufficient clarity is to be assessed objectively by the court.”

45.  The learned authors of Chitty on Contracts, 33^rd edn, [4-093] had this to say about inactivity, which is, I believe, equally applicable to delay:

“Although a promise or representation may be made by conduct, merely inactivity will not normally suffice for the present purpose since ‘it is difficult to imagine how silence and inaction can be anything but equivocal’. Unless the law took this view, mere failure to assert a contractual right could lead to its loss; and the courts have on a number of occasions rejected this clearly undesirable conclusion.”

46.  Furthermore, I fail to see how Bespark had relied upon a promise by Golden Concept not to enforce its right against it (assuming there was such a promise).  In Lou Xing Juan, §55, Ribeiro PJ held:

“A promissory estoppel may be said to arise where, … (iii) the promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.”

47.  The uncontroversial evidence demonstrates that there could not be any such reliance.  Bespark was asked to and did approve the draft Sub-Contract.  It conducted itself in according with the terms of the same. 

48.  Furthermore, a promissory estoppel has only suspensive effect:

“The equitable doctrine, like the common law doctrine of waiver, generally does not extinguish, but only suspends rights. The landlord in Hughes v Metropolitan Ry was not permanently debarred from enforcing the covenant to repair. He could have enforced it by giving reasonable notice to the tenant requiring him to repair.” (Chitty on Contracts, [4-097])

49.  Assuming that Bespark can rely on a promissory estoppel or waiver, there was no legitimate reason for it not to execute the Sub-Contract once it was notified by Paul Y to do so.

50.  Finally, in my view Bespark had already accepted the Sub-Contract by conduct.  Indeed, pursuant to the terms of the Letter it had assumed the obligations under the Sub-Contract.  Once Bespark had approved the terms of the Sub-Contract, and that it and Paul Y conducted themselves in accordance with its terms, the formality of execution was (and is) not pertinent.

51.  A good deal of parallel may be drawn between this case and Jets Technics Ltd v The Hong Kong Jockey Club, unrep, HCCT 23/2009, 16 December 2009.  In that case, the employer succeeded in striking out the claim against it by a nominated sub-contractor who, similar to the present case, sued for payment pursuant to a letter of intent under which it was nominated.  The nominated sub-contractor did not enter into a formal sub-contract with the main contractor as contemplated.  Reyes J held at §§8-9:

“8. In a usual situation, following a person’s nomination as Sub-Contractor, there is no direct contractual relationship between the Employer and the Nominated Sub-Contractor. …

9.   Here the Jockey Club as Employer undertook to nominate Jets as Sub-Contractor.  The Employer did precisely that.  Thus, whether or not TOP issued a written acceptance or TOP and Jets executed a “formal” written Sub-Contract Document, is not pertinent.  There can be no doubt that at all material times TOP treated Jets as Nominated Sub-Contractor for the project.  By its conduct, TOP signified that it was accepting Jets as Nominated Sub-Contractor.  TOP has conceded as much in its pleading in Jet’s action against it.” 

52.  The judgment was upheld on appeal: Jets Technics Ltd v The Hong Kong Jockey Club, unrep, CACV 11/2010, 8 July 2010, §§ 13-14:

“13.  Given all the surrounding circumstances to this case, I consider that it is taking too narrow a view of the facts to level criticism at the judge for the approach which he took.  Nevertheless, I would also add that I consider the claim to be self-defeating.  The Statement of Claim recites considerable history of interaction between the plaintiff, the defendant, the architect, the quantity surveyor and, in particular, TOP.  It is unnecessary to set that out in detail save to say that the conclusion must be that all parties treated the plaintiff and TOP as being main contractor and subcontractor.  In paragraph 42 of the statement of claim the plaintiff acknowledged that it had received “the sum of HK$1,713,000 from the Defendant through the Main Contractor.”  That, would be entirely consistent with the judge’s approach that, until it became convenient for the plaintiff to try to mount a case outside the terms of the subcontract, the parties approached the matter on the usual basis of main contractor and subcontractor.

14.  I would add that to interpret the document referred to as the ‘Letter of Intend’ (sic) as not constituting a written acceptance by TOP of the plaintiff as a nominated subcontractor might be justified on a very strict linguistic interpretation.  However, the clear practical position was that following the acceptance of that letter by the plaintiff, all parties were clearly committed to entering contractual relations with each other.  Read sensibly, in the context of the fact that the plaintiff was clearly already carrying out work, TOP had become the Main Contractor and the parties proceeded on the basis of the Main Contract being in effect with instructions coming from the Architect, I cannot see how it can be said that TOP was doing anything other than accepting the plaintiff as the Subcontractor.”

53.  The upshot of the foregoing analysis is there is no proper ground for Bespark to wriggle out of its obligation to execute the Sub-Contract.  What it should have done to pursue its claim based on ICP 28 was to make a demand to Paul Y for payment, preceded by the execution of the Sub-Contract where necessary.  If Paul Y failed to meet the demand, Paul Y might bring an arbitration against Golden Concept, in accordance with the contractual dispute resolution provisions, either in its own name or on behalf of Bespark based on clause 12 of the Sub-Contract:

“The Main Contractor will so far as he lawfully can at the request and cost of the Sub-Contractor obtain for him any rights or benefits of the Main Contract so far as the same are applicable to the Sub-Contract Works but not further or otherwise.”

54.  The above analysis applies equally to Action 2. However, as pointed out by Mr Tsang, it is not an action based on an ICP.  If Bespark is unable to obtain satisfaction from Paul Y, it may have to rely upon clause 11(d) of the Sub-Contract to bring arbitration proceedings against Golden Concept with the use of Paul Y’s name:

“(d) If the Sub-Contractor shall feel aggrieved by the amount certified by the Architect or by his failure to certify, then, subject to the Sub-Contractor giving to the Main Contractor such indemnity and security as the Main Contractor shall reasonably require, the Main Contractor shall allow the Sub-Contractor to use the Main Contractor’s name and if necessary will join with the Sub-Contractor as claimant in any arbitration proceedings by the Sub-Contractor in respect of the said matters complained of by the Sub-Contractor.”

55.  By reason of the above analysis, Bespark’s Actions are misconceived.  Clause 9 of the Letter precluded Golden Concept from assuming any liability to Bespark notwithstanding that it had elected to make direct payment to it.  Bespark has proffered no viable answer to clause 9.  

Exercise of discretion 

56.  Mr Yau argued that the court should not grant the discretionary remedy of specific performance in favour of Golden Concept when the work in question had been completed (see para 40 above).  The only reason for Golden Concept to insist on the execution of the Sub-Contract is to put up obstacles for evading payment to Bespark.

57.  Regrettably, I am unable to agree with Mr Yau despite the lack of substantive merit in Golden Concept’s case.  It is not clear from the evidence whether the defect liability period has expired.  In any case, it is important for the parties to have no doubt on their respective rights and obligations.  Bespark may be said to have contributed to its own misfortune for not facing up to the fact that its rights are governed by the Sub-Contract. 

58.  Further, I agree with Mr Tsang that granting the remedy may avoid further misguided legal action by Bespark against Golden Concept. 

Declaration

59.  I do not believe that it is necessary to grant additionally the discretionary remedy of declaration in the Actions.  The parties should know where they stand with the execution of the Sub-Contract. 

Disposition

60.  The appeals of Golden Concept are allowed and the relevant Orders of the Master below are set aside.  Both Action 1 and Action 2 are dismissed.  Judgement is given in favour of Golden Concept for its Counterclaims of specific performance by Bespark to execute the Sub-Contract. Bespark’s appeal is dismissed. 

61.  There be an order nisi that the costs of the Actions, including the Counterclaims, be paid by Bespark.  The costs of and occasioned by all the O 14 Summonses, including the hearing below, and the appeals be paid by Bespark, to be taxed if not agreed.