LIU MAN WAI, CHAN CHI SUEN t/a OCEAN AIR-CONDITION ENGINEERING CO v. CHEVALIER (HONG KONG) LTD

HCCT85/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.85 OF 2002

--------------

--------------

-----------------------

D E C I S I O N

-----------------------

1. In this application the plaintiff seeks summary judgment under Order 14 Hong Kong Civil Procedure or alternatively an interim payment order under Order 29, rule 10 against the defendant.

BACKGROUND

2. The plaintiff's claim in this action arises out of work carried out as part of the re-development project called the "Gateway II Harbour City Re-development".

3. The employer was Wharf Properties Limited and the main contractor, Chevalier Construction (Hong Kong) Limited. The defendant, a related company of the main contractor, was a nominated sub-contractor. The plaintiff was the sub-contractor of the defendant.

4. By five contracts contained in or evidenced by purchase orders dated variously between September 1996 and June 1999 as detailed in the Statement of Claim ("the Purchase Orders"), the plaintiff undertook to supply materials, labour, tools and instruments for the design, supply, installation, testing and commissioning for certain electrical installation works for the project.

THE PLAINTIFF'S CLAIM

5. The claim is for the sum of $5,615,920.68 being the outstanding balance of charges for work done and services rendered by it pursuant to the Purchase Orders and also for variation works. The total amount consists of two separate parts.

6. $3,176,540.00 relates to variation works carried out by the plaintiff under the Purchase Orders. The basis for the claim in this amount is an agreement alleged to have been reached between the parties in early July 1999. This agreement is primarily evidenced by a letter dated 13 July 1999. The sum referred to in that letter was $3,411,443.30. It was later discounted to $3,176,540.00 after a meeting which took place on or about 16 November 2000 between the two plaintiff partners and representatives of the defendant.

7. As for the balance, $2,439,380.68, this is alleged by the plaintiff to be in relation to retention monies, outstanding amounts due for the original work carried out under the Purchase Orders as well as for some variation works. This sum may be further split into two. $1,777,367.18 relates to the retention money and $662,013.50 to further variation orders.

8. For the purposes of the application the two sums of $3.176 million and $2.439 million merit separate consideration.

THE $3.176 MILLION CLAIM

9. The plaintiff relies on an agreement between the parties to pay this sum. In relation to an earlier unsuccessful application by the defence to stay these proceedings in favour of arbitration, the Court of Appeal said :

"The plaintiff's claim will succeed or fail dependant on whether or not an agreement can be established."

10. It is that very issue which is now before this court. The plaintiff will be entitled to summary judgment if there is no triable issue concerning the existence of the alleged agreement. Much turns on the defendant's letter to the plaintiff dated 13 July 1999, the whole of which merits consideration. It reads as follows :

"Dear Sir,

Gateway II, Harbour City Redevelopment
Electrical Installation - Interim Agreement of Variation Works

Further to the meeting with your goodself on 6th & 8th July 1999 in our office with respect to the variation works of the captioned project, we would like to record the agreed amount of the variation work as tabulated on the attached schedule.

The interim agreement of the sum of the variation work is summarized as follow.

		Amount Agree (HK$)	Amount P.O. Issued (HK$)
1.	Podium variation V.O. No. 1 to 71	9,202,673.00	7,001,915.00
2.	Office variation V.O. No. T1 to T23	3,267,512.20	2,737,597.40
3.	Serviced apartment variation V.O. No. A1 to A29	7,072,025.30	6,391,258.80
	Total Amount :	19,542,214.50	16,130,771.20

Outstanding P.O. amount to be issued $3,411,443.30"

11. It is signed by the defendant's contract manager, Mr K.H. Ting, copied to the defendant's project manager, Mr K.C. Ma and confirmed by the plaintiff's company chop and signature. It can be seen from the letter that it followed a meeting which was held over two days on 6 and 8 July.

12. The plaintiff's case is that this letter is unequivocal. An agreement is still an agreement whether or not it is called an "interim" agreement. The word "interim", it is submitted merely refers to the timing of the agreement not its nature or binding effect.

13. The defence to the $3.176 million claim is twofold. Firstly it is submitted that there is a triable issue as to whether there was in fact a final and binding agreement to pay this sum as evidenced by the 13 July letter. Secondly, even if there was, the defendant has claims against the plaintiff, arising out of the contract, which, if proved, would extinguish the plaintiff's claim. In other words a set-off and counterclaim.

14. On the $3.176 million part of the claim I think I can decide the Order 14 issue on the defendant's first defence only. I do not need to consider their second defence at this stage.

15. The defence submit it is at least arguable that the letter of 13 July would not be construed as a binding agreement or admission that $3.176 million was, there and then, due and payable to the plaintiff. It is submitted that it should be viewed in the overall context of the underlying contract. The underlying contract is a remeasurement contract in which obligations to pay interim amounts is subject to a "final measurement". At best, it is submitted, the 13 July letter, accepts that an interim amount has been calculated but that, the parties well knew, it would be subject to final measurement. The defence rely on the use of the word "interim" in support. They also point out that the letter concludes not with a statement of admission to pay but that "outstanding P.O. (purchase order) to be issued ...".

16. On 20 April 2001, the plaintiff sent a letter to the defendant. The plaintiff places reliance on it because it includes an interim statement of account dated 23 March 2001 which was "checked by your project manager Mr K.C. Ma" and signed by him. The outstanding balance on the statement is the $5.615 million for which summary judgment is sought. Included in it is the sum of $3.176 million (albeit not in that precise sum but as part of a larger amount of variation works namely $3.838 million which is made up of the $3.176 million plus the $662,013.00 which is part of the second limb of this application). The defence submit that this letter is no more or less than what it says it is, namely an interim account which encloses a "payment summary".

17. The defendant also relies on the fact that the 13 July 1999 letter followed lengthy meetings on 6 and 8 July. Evidence at trial about what occurred at those meetings should be heard.

18. In short it is contended, and I agree, that primarily because of the various terms in the contract which refer to "provisional agreements", "subject to final assessments ..." and "final measurement" it is at least arguable that the letter of 13 July 1999 constitutes a provisional agreement which had been reached on an interim basis. I do not regard such a contention as "moonshine" which would deprive the defendant of least arguing their point as a preliminary factual issue.

19. In relation to the $3.176 million part of the plaintiff's claim, I give the defendant unconditional leave to defend.

THE $2.439 MILLION CLAIM

20. As already mentioned this sub-divides into two amounts of $1.777 million and $0.662 million.

(a) $1.777 million

21. There is no question but that the $1.777 million relates to outstanding retention money and other payments in respect of the original contracts.

22. The plaintiff's case for the $1.777 million is that the work has long been completed, maintenance certificates have been issued and moneys received by the defendant. In addition there is documentary evidence pointing to their contention that there is no dispute that this sum was conceded as being due and payable. In short, it was retention money that should have been released long ago and the defendant conceded as much.

23. Again the defence is that there was no agreement or admission and the defence of set-off and counterclaim is valid.

24. In this instance I reject the defendant's contention that it is arguable that there was no acceptance by them that the money was due and payable. The document, upon which the plaintiff relies, is a payment summary dated 23 March 2001 in which the "outstanding balance" for "sums due under the original contract" totals $1.777 million. This document is signed as having been "checked by" Mr K.C. Ma, the defendant's project manager. Mr John Scott SC for the defendant argued that this did not necessarily mean that it had been checked as being correct but that it might mean, for example, that it had been checked as against another unspecified document. He also attempted to argue that the signature might only refer to part of the document and not to the whole of it (although he later resiled from this submission). In my judgment, it is safe to conclude, in this application, that "checked by K.C. Ma" means that Mr K.C. Ma checked all the figures and was satisfied that they were all correct. In other words, he accepted that they were accurate.

25. I regard retention money and outstanding contract payments to be in a different category from claims for variation works. If this were the end of the argument on this sum, I would make an order that the $1.777 million be paid into court.

26. However, the defence have a second string to their bow, namely the set-off and counterclaim argument which, they submit, if proved, would extinguish the plaintiff's claim.

27. In outline, the defence say their counterclaim is worth approximately $2.8 million. It comprises contra-charges for various items such as rectification of defects, scaffolding, failure to remove debris from various sites and an exposure to a claim for liquidated damages for delay caused by the plaintiff.

28. The plaintiff's response is swift and direct. Ms Teresa Cheng SC for the plaintiff points out that the defendant has not had to pay any liquidated damages, these defences have been raised late in the day and are unparticularized, the allegations are largely mere assertions and there is no evidence that the plaintiff, rather than other sub-contractors, is responsible. Much of this criticism is valid. The details of the alleged counterclaims were first referred to by affirmation only in August 2002 and whilst they are not devoid of particularization, the proper degree of detail is plainly lacking. Opportunities to raise them as issues, for example when progress payments were being made, went by.

29. Having given the matter careful consideration and bearing in mind that I should avoid the temptation of trying the issues by affirmation evidence, whilst I accept that the counterclaim appears to be tenuous and on shaky ground, I cannot conclude that it is hopeless and therefore refuse leave to defend.

30. It is not, however, a case for unconditional leave to defend the $1.777 million claim. The combined effect of the "acceptance" of the figure by Mr K.C. Ma and my comments about the quality of the counterclaim persuades me that a payment into court of this amount should be made.

(b) $0.662 million

31. This sum appears in the same document that was "checked by" Mr K.C. Ma. It is part of the $3.838 million for outstanding payments for variation orders (being made up by $3.176 million + $0.662 million). The points already made with regard to the $3.176 million issue also apply here. The only difference being that the $0.662 million did not form part of the allegedly "agreed" amount as at 13 July 1999. I therefore make the same order with regard to this part of the claim.

32. I therefore order that the defendant is granted leave to defend the $1.777 million part of the claim on condition that it pays into court $1,777,367.18 within 21 days hereof. Failure to do so within time shall result in judgment being entered for the plaintiff in that sum. The defendant is granted unconditional leave to defend on the remainder of the claim. The defence and counterclaim shall be served within 28 days of the expiration of the time allowed for the above payment-in.

33. The costs of this application shall be in the cause.