SHUN CHEONG ELECTRICAL ENGINEERING CO. LTD. v. WAI SHUN CONSTRUCTION CO. LTD.

CACV000531/2000

CACV531/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 531 OF 2000

(ON APPEAL FROM HCA 1001 OF 2000)

_________________________

_________________________

_______________

J U D G M E N T

_______________

Hon Leong JA (giving the judgment of the court) :

1. The plaintiff was engaged by the defendant to carry out certain electrical work specified in a government contract. In this work, Gammon Construction Ltd (Gammon) was the main contractor. The defendant was Gammon's sub-contractor. The plaintiff was the sub-contractor of the defendant. There was no written agreement between the plaintiff and the defendant. A sum of $663,410, being the balance of payments for the plaintiff's work, was outstanding. The plaintiff commenced an action to recover this sum. There is no dispute that the sum is due and unpaid by the defendant for work done by the plaintiff. The plaintiff obtained before a Master, summary judgment against the defendant. The defendant appealed. Burrell J of the Court of First Instance allowed the appeal and gave the defendant unconditional leave to defend. The plaintiff now appeals against the judgment of Burrell J seeking to set aside his order.

2. The defendant's case before Burrell J was the plaintiff was engaged on terms that payment for the plaintiff's work would be made only after the Architectural Services Department (ASD) had made the payment to Gammon and after the defendant had received payment from Gammon i.e. on "pay when paid" term. Gammon had not paid the defendant in respect of the work under claim and until they are paid, they are not in a position to pay the plaintiff.

3. The defendant's case is also this. Through out the contract, payments were made to the plaintiff on such term and the payment vouchers support this. Further, in an earlier action HCA 851/99 between the parties, where the plaintiff claimed payments for work done under the same contract, the court found the payment term was "pay when paid".

4. The plaintiff's case is that there was no such "pay when paid" term. The defence is pure conjecture. The payment term had always been "payment within 30 days after submission of payment vouchers certified by the ASD as to the amount of work done" and payments were always made to the plaintiff on that basis. In HCA 851/99 where the plaintiff claimed payments based on "payment within 30 days" terms, the defendant did not dispute it. In any event, the plaintiff said the defendant had received payments from Gammon.

5. Two days before the hearing by Burrell J, the defendant put in evidence which was not before the Master. This relates to a detailed schedule of payments throughout the contract. The plaintiff did not respond to this evidence. No objection to the late filing of the evidence was raised by the plaintiff and neither did they ask for an adjournment to response to the evidence. Burrell J found this fresh evidence provides evidence of a "pay when paid" course of dealing but not proofs thereof.

6. Burrell J in his judgment said this :

7. Before us, Mr Lin for the plaintiff submits that the defendant constructed the defence from the documents. There is simply no evidence as to how, when and by whom the payment term as contended by the defendant was brought into being. The lack of evidence does not justify the granting of unconditional leave to defend. On the other hand, the demand letters the plaintiff sent to the defendant with the vouchers in support show that the payment term was "within 30 days".

8. Mr Lin submits that the defendant have to make good their case but their case is not believable.

9. In any case, Mr Lin further submits, Gammon had paid the plaintiff. Evidence of this is to be found in two letters from Gammon to the defendant, one dated 10.7.1998 and the other dated 5.1.2000. These letters state that all monies received to date and due to the defendant had been paid to the defendant by Gammon and the disputed overpayments do not relate to the work done by the defendant.

10. Mr Ng for the defendant submits that it was the defendant's case right from the start that "pay when paid" was the payment term. The evidence is in the affidavit of the defendant's construction director Lo Sek Chiu, the relevant part of which is, as can be found, in the following paragraphs :

11. Mr Ng submits that although there was no evidence of how that term had been agreed, it was the plaintiff's understanding that payments would be made on the same term as other sub-contractors and that all sub-contractors were paid only after the defendant had been paid. The schedule of payments, ledgers and correspondence show that the plaintiff were only paid after the defendant had received payments from Gammon. The defence was not a construction from documents.

12. Alternatively, Mr Ng submits that the evidence show a consistent course of payments on the term "pay when paid" since the commencement of the project in 1992. The project was completed in 1995 and it would not be open to the plaintiff to turn around in July 1998 to say that it is not the payment term. Whether the plaintiff would be estopped from denying that this was the term of payment is a question of law and fact which should be tried.

13. Mr Ng submits that there is a dispute between the defendant and Gammon where Gammon alleged they had overpaid the defendant for the work done in the project and this has yet to be resolved. The overpayments, if any, would necessarily include those paid or to be paid to the plaintiff under the term "pay when paid". Whether Gammon had paid all that was due is a question of fact and that has to be determined.

14. We note that the plaintiff in their letter of 8.7.1998 to the defendant maintained that the term had always been "within 30 days from the date of the government vouchers". But in their letters of demand, which they rely upon to show that this was the payment term, the plaintiff did not make their demands on this basis. Instead in these demands, including those made after 8.7.1998 for work done after that date, the plaintiff invariably state the following :

15. The plaintiff's demands were indeed inconsistent with what they maintained to be the term of payment. These demand letters go to support the defendant's case rather the plaintiff's.

16. The plaintiff's letter of 5.1.2000 relates to the state of account as on 25.6.1998 after which date no further payments were made to the defendant by Gammon. The claims of the plaintiff relate to vouchers which are either dated after 25.6.1998 or the due dates of which are after 25.6.1998 This evidence, as Mr Ng has submitted, does not support the contention of the plaintiff that the defendant had received payments from Gammon in respect of the amounts under claim. On the contrary, this evidence supports the defendant's case.

17. In Strong Base Services Ltd v Geroma Electronic Ltd & Anor [1996] 2 HKC Godfrey JA, in his review of the authorities on the function of the Court of Appeal on an appeal from an order of a judge giving a defendant unconditional leave to defend a plaintiff's application under Order 14, referred to the following passage in Lloyds Bank Ltd v Ellis-Fewster [1983] 1 WLR 559 where Sir Donaldson MR said this :

18. What Goff LJ said in European Asian Bank AG v Punjab and Sind Bank (No.2) [1983] 1 WLR 642 is also referred to by Godfrey JA :

19. The plaintiff has to overcome difficult grounds to persuade us to interfere with the order made by Burrell J. We do not think the plaintiff has succeeded.

20. The evidence before Burrell J clearly shows a dispute as to whether the term of payment was that as alleged by the plaintiff or as that alleged by the defendant. The evidence also shows the defendant's case is not unbelievable. Burrell J reviewed all the evidence and concluded that there is a question of fact, which ought to be tried. His order should not be disturbed. The appeal is dismissed with costs to the defendant.

Representation: