XCHRX WANG CHONG CONSTRUCTION CO. LTD. v. RYODEN ENGINEERING CO. LTD.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

1998, No. A22225

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JUDGMENT

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1. Ryoden was a subcontractor to Wang Chong on a government contract for some work on the Begonia Boys' Home in Shatin.

2. On 8 December 1998, Wang Chong issued three payment certificates to Ryoden amounting to the sum of $1,926,032. These certificates made provision for Wang Chong to deduct contra charges if it wished to do so. Wang Chong did not enter any amount in the spaces provided for this purpose. In fact, a dash was entered in these places indicating clearly that no contra charges were raised by Wang Chong. Following the issue of these certificates, Ryoden issued an invoice for the amount concerned on 17 December 1998.

3. Ryoden had had trouble getting interim payments from Wang Chong in the past; there had been delays in payment and four cheques had been dishonoured, so Ryoden pressed Wang Chong hard for payment of the sum of $1,926,032, and threatened litigation.

4. In response, Wang Chong, through Ms Sylvia Yiu, who described herself as "Finance Manager" of Wang Chong, wrote a letter dated 22 December 1998 to Ryoden saying that payment would be made on 29 December 1998. There was no mention in this letter of any claim by Wang Chong.

5. But, instead of payment the sum of $1,926,032 on 29 December 1998 as promised, Wang Chong issued a generally endorsed writ against Ryoden claiming the sum of $2.2 million damages for breach of contract. No statement of claim has been filed and served in this action. The first evidence of one was a draft handed up to me by Mr Finley on 15 April 1999.

6. On 4 January 1999, Mr Yau, a senior manager of Ryoden, met Mr Wong, the managing director of Wang Chong. During this meeting, Mr Wong said that Wang Chong's writ would be withdrawn, and Mr Wong would discuss payment of the sum of $1,926,032 with Mr Yau. Mr Wong, who has filed evidence on behalf of Wang Chong, does not deny that he said this.

7. In spite of this undertaking by Mr Wong, Wang Chong issued a revised payment certificate a few days later under cover of a letter dated 7 January 1999 claiming $2.2 million as damages. The payment certificate shows this sum in the provision for contra charges. There is no explanation whatsoever from Wang Chong as to why this alleged contra charge was not included in the original certificates. In an understatement of the situation, Mr Finley says that this failure is "not helpful" to his client's case.

8. Ryoden now seeks judgment under Order 14 in respect of the sum of $1,926,032 and the dismissal of Wang Chong's action for want of prosecution.

9. Ryoden's application is supported by an affirmation from Ms Susanne Chan the substance of which I have already stated.

10. Wang Chong has filed evidence from Ms Sylvia Yiu. In her affirmation, unlike in her letter mentioned earlier, Ms Yiu describes herself twice as a Finance Manager of Wang Chong, and says that when she wrote the letter of 22 December 1998 she did not know of Wang Chong's claim against Ryoden. She does not explain how it came about that she wrote the letter without making any inquiries of those who would know about contra charges, asking if there were any, especially in a situation in which Ryoden was threatening litigation and in a construction contract in which contra charges are common. Mr Finley concedes that Ms Yiu's explanation is "unsatisfactory", as indeed it is.

11. Wang Chong has also filed evidence from Mr Wong Kwan. He seeks to show that Wang Chong's claim for $2.2 million is a good one, but he makes no attempt to explain why the original certificates were issued saying, in effect, that Wang Chong had no claim to contra charges. He also does not deny that he agreed to withdraw Wang Chong's writ and discuss payment of the sum of $1,926,032, but gives no explanation for this behaviour that must be assessed as strange if Wang Chong genuinely believed that it had an honest claim.

12. Mr Wong says that Wang Chong's claim is estimated to be $2.2 million, and gives a break-down in suspiciously round figures. There is a claim for $450,000 in respect of relocation of pipeworks, but the documents said to "evidence" this in fact support a claim for very much less than this large sum. There is another claim for $300,000 for cleaning and disposal of rubbish, but the "evidence" supports only a cost of about $35,000. In any event, the undisputed evidence from Ryoden is that some of the invoices alleged to support this claim relate to the transportation of rubbish from a different site. A third claim of $150,000 for re-erecting scaffolding is "supported" by evidence of only some $86,000.

13. On 17 March 1999, Ryoden issued another writ against Wang Chong in which it claims a further sum of $2,293,502.25, and, on 31 March 1999, issued a summons seeking Order 14 judgment in respect of this sum.

14. In respect of this claim, Ryoden submitted an interim payment application dated 28 December 1998. Wang Chong did not assess the work done so Ryoden asked the client's architect to make the assessment. The client's architect did so, and Ryoden calculated the amount due on the basis of this assessment, and included this in an invoice dated 8 February 1999. Wang Chong's response was to issue a payment certificate showing a contra charge increased from $2.2 million to $3.96 million, leaving $1,013,978 due by Ryoden to Wang Chong. Wang Chong does not in the certificate make any attempt to reconcile its assessment with that of the client's architect, and fails to give Ryoden any credit for work done between 27 November and 28 December 1998. The additional $1.76 million claimed by Wang Chong is in respect of $1.6 million "acceleration cost" and an additional $160,000 "management cost". Wang Chong makes no attempt at all to justify the original "site overhead cost", the new "acceleration cost" or the original or revised "management cost".

15. Wang Chong has filed no evidence at all in opposition to this application, although Mr Finley filed an affidavit in the earlier Order 14 proceedings on 14 April 1999. This evidence does nothing but reveal a misunderstanding about some allegations about Ryoden attending site meetings and seek to throw doubt on Susanne Chan's knowledge of the matter.

16. There can be no doubt that Ryoden has established its claims to the sums of $1,926,032 and $2,293,502.25. Indeed, Mr Finley did not seek to argue to the contrary. The only question for me is whether or not Wang Chong has advanced a credible case for a claim of $3.96 million, or any sum, that is fit for trial so that it is entitled to leave to defend Ryoden's claims. In my view, it has not. In making that assessment, I take into account the factors I have already mentioned -

1. The delay by Wang Chong in making and pursuing this claim generally;

2. The failure to advance any claim at the appropriate stage of issuing the payment certificates to Ryoden. This was rather more than a simple omission. Impliedly, Wang Chong said that it had no such claim.

3. The absence of any explanation for failing to raise the claim in these payment certificates.

4. The undertaking to make payment to Ryoden. This was in the context of threatened litigation by Ryoden; a context in which one would expect Wang Chong to review the facts and be sure that the money was due, especially in a business in which contra charges are quite usual The explanation for this admission that the money was due is totally unsatisfactory.

5. The undertaking by Mr Wong to withdrawn Wang Chong's claim and discuss payment to Ryoden. If this had not happened, Mr Wong would have denied it. He does not do so, or make any attempt to explain what he said. It being established that he said this, it is completely inconsistent with an honest belief that Wang Chong had a claim.

6. The suspicious and generally unsatisfactory nature of Wang Chong's claim.

17. Accordingly, I grant final judgment in favour of Ryoden against Wang Chong in the sum of $1,926,032, together with interest at 2% over the commercial bank rate from 8 December 1998 until today and at the judgment rate from today until payment and in the sum of $2,293,502.25, together with interest at 2% over the commercial bank rate from 8 February 1999 until today and at the judgment rate from today until payment.

18. There seems no reason why Ryoden should not have its costs. I make an order nisi that Wang Chong pay Ryoden costs of action and the applications under Order 14.

19. As to Ryoden's application to strike out Wang Chong's action, it is agreed I make no order on this application and that Wang Chong should pay the costs of this application and the application for the extension of time. I so order and that Wang Chong should file and serve its statement of claim before 22 April 1999.

20. I also have an application before me by Wang Chong to consolidate the claims. This does not arise because there remains only the claim by Wang Chong. This application is dismissed, with an order nisi that Wang Chong pay Ryoden's costs of this application.