THE SUMITOMO BANK LTD v. SHEEN STATE INTERNATIONAL LTD t/a SHUN SHING ENGINEERING CO

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DECISION

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1. This is an application for summary judgment in the sum of $6,292,991.82 pursuant to Order 14. During the hearing, this was amended to $5,948,437.

2. Put briefly, the background is as follows. The defendant was a main contractor, and a firm called "Sum Tat" was one of its sub-contractors. The contract works were completed in 1996 but, as yet, no final account has been agreed between them.

3. The plaintiff is a bank which provided Sum Tat with credit facilities. As security, the bank obtained an assignment of monies due to Sum Tat from the defendant under their sub-contract. After the assignment, the defendant had to pay monies due to Sum Tat to the bank instead. In this action, the bank is suing the defendant on the assignment.

4. The full claim of the plaintiff is that Sum Tat is owed approximately $20.2 million by the defendant and that sum is therefore due to the bank. The pleaded defence of the defendant, however, is that Sum Tat owes them approximately $12.7 million.

5. The defendant's figure of $12.7 million is calculated on the following basis. The gross sum due to Sum Tat is $131.6 million, from which deductions of $144.3 million have been made. The difference, $12.7 million, is what Sum Tat owes the defendant.

6. In this Order 14 application, the plaintiff contends that of the seven items which make up the $144.3 million deductions, in five respects, they are unarguably wrong. They are as follows:

The total of the unwarranted deductions in (i) to (v) above is $18,685,497.

7. Thus, it is contented that this figure should be deducted from the $12,737,060 which the defendant claims is due from Sum Tat, which results in the minimum correct figure which is due to Sum Tat (and therefore to the bank by assignment), namely $5,948,437.

8. In calculating the figures on the plaintiff's behalf, considerable care has been taken by Mr Cheung Tat Tong, a quantity surveyor of great experience, engaged by the plaintiff. The defence simply submits that in respect of every item there is an issue to be tried. The figures are not agreed.

9. Taking each item in turn, the issues briefly are:

1) Payment made to Sum Tat -- $7,480,000

10. The defendant's case is that $6,380,000 was paid in cash. Their evidence is that cash payments are not uncommon and they produce an official receipt dated 11 June 1996 in support. They also produce a receipt for the other sum of $1,100,000 (dated 24 February 1996) which the plaintiff contends is unsupported.

11. The plaintiff argues that it is incredible that such a large sum would be paid in cash and it is incredible that the defendant cannot say who paid the money over or where and when. They say it is inconsistent with their usual, carefully documented, payment records. The plaintiff says the official receipts are dubious.

12. I do not consider it a proper case to give the plaintiff summary judgment in respect of this item. It seems to me to be a straightforward triable issue of fact.

2) Excavation works carried out on Sum Tat's behalf -- $5,948,600

13. The plaintiff submits that this deduction is unsustainable for four reasons:

14. The defendant's evidence joins issue with the plaintiff. Again, they say cash payments were made. They say the expiration of the defects liability period is not agreed, and they say that contrary to the minutes relied on by the plaintiff, the defendant did in fact do the remedial work. The defence says that these are all triable issues of fact, not to be determined on affidavit evidence.

3. Payments to suppliers -- $1,698,493

15. The plaintiff's quantity surveyor has identified various payment certificates and receipts which were marked "to be charged to Kin Wah". This total of $1,698,493, the plaintiff submits, is not chargeable to Sum Tat's account. The defendant's answer is that Kin Wah was a sub-contractor of Sum Tat, therefore, it can be properly included in the account.

16. The issue arises because the plaintiff claims that the documentary evidence suggests that Kin Wah was not a sub-contractor of Sum Tat, but was a sub-contractor of the defendant.

17. It seems to me that the defendant's contention does not fall into the category of "frivolous or practically moonshine" (Man Earn Ltd v. Wing Ting Fong [1996] 1 HKC 250). The simple factual issue, about which there is competing evidence is -- of whom was Kin Wah a sub-contractor? It cannot be answered in this application.

4. Payment to suppliers on behalf of Sum Tat -- $2,255,404

18. This sum is made up of two separate items:

19. The first item is challenged on the basis that it is claimed as a payment to Sum Tat. If it was paid to Sum Tat, how can it be deducted on the basis that it was a payment made on Sum Tat's behalf? It is also challenged on the basis that it post dates the date of the assignment (16 October 1996). Thus, at that time, any such payment should have been directly to the plaintiff.

20. The payroll payment was, the plaintiff contends, according to contemporary documents, for an entirely different project.

21. The defence submits that the assignment, as a matter of law, was not valid until 11 November 1996. Thus, the issue is an arguable point of law. Secondly, there is evidence that the inclusion of these items in the final account was agreed or consented to by Sum Tat. Certain correspondence is relied on.

5. Liquidated damages

22. The plaintiff submits that there is clear evidence that the liquidated damages deduction was agreed at $2,000,000. The later correspondence, upon which the defendant relies for their figure of $3,303,000, is in February 1997 and, therefore, post dates the assignment and cannot be relied on by the defence.

23. The defence argues that even Mr Cheung's expert evidence on this issue is equivocal and, therefore, it cannot be resolved summarily.

24. Looking at the case as a whole, even the basic facts are unclear. Since late 1996, there have been wide swings in the sums claimed. In November 1996, the defendant estimated $8 million due to Sum Tat. By March 1998, the defendant was saying $6.8 million was due from Sum Tat. By January 1999, that figure had grown to $12.7 million. In the writ action, the plaintiff claims under the assignment $20.2 million. In the alternative, it claims the sum of $8,116,285 being the amount of the judgment it entered against Sum Tat in February 1998.

25. In the Order 14 proceedings, the plaintiff is saying, in round terms, that the defendant has wrongly claimed that $12 million is due from Sum Tat in the final account. The plaintiff says that is wrong to the tune of $18 million. $18 million has been wrongly included in the calculation. Therefore, they say the defendant's case, if properly calculated, should show that $6 million is due to Sum Tat, not $12 million from Sum Tat. It follows, therefore, that in order to get summary judgment in these proceedings for even $1, they must be successful in the Order 14 arguments on at least $12 million of the $18 million (again in round terms) in issue.

26. Bearing in mind these facts and the legal principles to be applied in Order 14 proceedings, they face an uphill task. The legal principles are well settled. Applications for summary judgment have attracted a wealth of judicial comment. For example, Binghan LJ in Crown Hours Engineering v. Amec Properties (1990) 6 Const LJ at 154:

"...Order 14 is for clear cases : that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. ... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say ... that a defendant with no or no more than a partial defence can cheat a plaintiff of his just desserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognize the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial ... rather than dissipate their energy and resources on deceptively attractive short-cuts."

Mortimer JA in Marciple v. Char On Man [1995] 3 HKC at 466 :

" There is a difficulty because the court cannot resolve issues of fact on affidavits. However, there are some cases in which the defendant's own case, although apparently it raises issues which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham."

Bokhary JA in In re Safe Rich Industries Ltd, CA 81/94 :

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognized -- because failure to recognize it would create a debt-dodger's charter -- that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

27. In the present case, looking at the issues raised in each of the disputed items and placing them in the overall context of the nature of the contract and the relationship between each party and Sum Tat, I cannot conclude that the defences raised are so incredible that it is plain that the defence is a sham. Summary judgment will not be granted.

28. I have considered the alternative of imposing conditions on leave to defend. It is fair to say that some of the defence contentions are dubious. At trial, the evidence of Mr Cheung Tat Tong will very probably carry considerable weight. The defendant's task in justifying all their calculations seems, at this stage, to be an unenviable one. Nonetheless, the test is, when considering conditional leave, did the court "very nearly enter judgment" summarily; are there "grounds for believing the defence is a sham"; it is a "shadowy defence" of "little or no substance"?

29. In this case, these thresholds have been threatened but not reached.

30. In conclusion, two factors are worthy of mention which have been weighed in the balance in the court's determination. Firstly, approximately $12 million of the $18 million in dispute, turns on the issue of whether or not payments were made in cash. However unlikely this may seem at first blush, it is not a matter which can be dismissed out of hand on affidavit evidence. That being the case, much of the wind is taken out of the plaintiff's sails. Even if they had solid grounds on the remaining sums in dispute (about $6 million), the defendant's calculation is still left with a negative sum due to it from Sum Tat.

31. Secondly, an order for summary judgment in the amount claimed by the plaintiff would not put an end to the writ action. Their full claim is for $20 million. In any event, therefore, a trial involving complex quantity surveying issues seems inevitable.

32. I dismiss the summons, give unconditional leave to defend and make a costs order nisi that costs be in the cause.