YING CHEONG CONSTRUCTION CO LTD v. LAM WOO & CO LTD

HCCT 61/2017

[2019] HKCFI 1654

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 61 OF 2017

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D E C I S I O N

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1.  This is the Defendant’s application, made on 9 August 2018, for there to be a split trial, or a preliminary determination of the following issues (“Issues”):

(1)   whether the Plaintiff and the Defendant have reached a Settlement Agreement in late 2014 (as particularized in paragraph 7.3 of the Defence and Counterclaim filed in the action) to settle their disputes which formed the subject matter of this action;

(2)   if the Settlement Agreement has been reached, what are its terms; and

(3)   whether the Settlement Agreement is still binding and enforceable.

2.  The application is opposed by the Plaintiff.

3.  The applicable legal principles do not appear to be in dispute.  The Court has the discretion under Order 33 rule 3 RHC to order any question or issue arising in a cause or matter to be tried before, at or after the trial, and to give directions as to the manner in which the question or issue should be stated.  In Teleford Development Ltd v Shui On Construction Co Ltd [1990] 2 HKC 110, the Court of Appeal held that as a general rule, all issues should be tried at the same time, and the only circumstances when the general rule might be departed from is that it would be just and convenient to do so.  The burden is on the party seeking a separate trial to justify the departure from the general rule (Secretary for Justice v Lau Hon Mo [2015] 3 HKLRD 561).  The general rule should only be departed from in “exceptional circumstances” and “on special grounds” (paragraph 33/3/1 Hong Kong Civil Procedure 2019).  Where the issues are fact-sensitive, the practice of the Court is to decline a split trial (Lee Yiu Kwan v Ting Yin Wah CACV 311/2002, 21^st of April 2004; Lee Chun Mui v Securicor Gurkha Services Ltd HCPI 774/2005, 15 February 2007).

4.  The Plaintiff’s claim in these proceedings is made as the sub-contractor, for payment of what it claims to be the balance of the sum due to it from the Defendant as the main contractor of construction works.  The relevant works (“Works”) were subcontracted to the Plaintiff under 9 sub-contracts in writing (“Sub-Contracts”).  It is not disputed that the Works had been completed, at the latest by 24 April 2014 upon expiry of the defect liability period, accepted by the Highways Department as the employer, and that the Defendant had received payment from the employer in respect of the Works under the main contract. 

5.  The Plaintiff claims that the Defendant acted in breach of the Sub-Contracts by failing to carry out or complete measurement of the completed Works, and failing to make payment of the sums due to the Plaintiff under the Sub-Contracts. 

6.  In its Defence and Counterclaim, the Defendant pleads that since May 2013,  the parties had entered into negotiations on the outstanding balance under the Sub-Contracts, and that agreement had been made in late 2014, as evidenced by the Plaintiff’s letters to the Defendant of 20 October 2014, 1 April 2016 and 7 November 2016, for the Defendant to pay to the Plaintiff HK $5.8 million in full and final settlement of all sums due and payable to the Plaintiff under the Sub-Contracts (“Settlement Agreement”).  The Defendant further pleads that the parties had agreed to suspend re-measurement of the Works under or by virtue of the Settlement Agreement.

7.  In paragraph 12.4 of the Defence, the Defendant pleads its case on the “Certified/final value” of the Works, contra charges, payments already made to the Plaintiff, and claims that the Defendant had overpaid the Plaintiff by a sum in excess of HK $3.9 million - which the Defendant seeks repayment by way of Counterclaim.

8.  From the Defence and the Reply, there is dispute as to whether the Sub-Contracts were subject to remeasurement on a back-to-back basis with the main contract, and whether the Defendant’s obligation to pay for the Plaintiff’s Works is dependent upon completion of remeasurement and verification of the Works.  The Plaintiff disputes the incorporation of the standard terms of the Defendant’s form of subcontract.

9.  On review of the pleadings, and the affirmations filed in support of and opposition to the application for split trial, I am not satisfied that the Defendant has established that there are special grounds or exceptional circumstances in this case which render it fair, just or convenient to warrant an order for there to be a separate trial on the identified issues of the Settlement Agreement.  My reasons are as follows.

10.  This is not a case of the Defendant seeking to have separate trials on liability, and quantum, between which there are clear lines of demarcation.

11.  The Issues are questions of mixed fact and law, and are highly fact sensitive.  The witnesses gave different versions of the alleged Settlement Agreement, and of the conditions discussed and allegedly agreed as to the time for payment.  In so far as the Issues include questions of law, such questions are mixed with and dependent on determination of the disputed facts.  The remaining questions of fact are sensitive to and depend on the Court’s determination of other disputed facts, such as why the remeasurement works were not carried out, and in that regard, may also turn on the Court’s determination and findings as to the parties’ obligations under the terms and conditions of the Sub-Contracts.

12.  In deciding whether or not there was a Settlement Agreement concluded and agreed, the Court would have to consider evidence not only of the negotiations and terms discussed orally in late 2014, but also of the conduct of the parties thereafter, including the steps taken before as well as after the alleged discussions around October 2014, in relation to the measurement of the Works completed by the Plaintiff.  According to the Defendant, it was part and parcel of the Settlement Agreement that the re-measurement exercise after the Settlement Agreement would be “suspended”, in the sense that it was implicit from the parties’ conduct, or it was their mutual intention so to suspend the remeasurement works after the Settlement Agreement.  These are denied by the Plaintiff.  Whether the remeasurement exercise was suspended after the alleged conclusion of the Settlement Agreement, and why it was suspended, will have to be investigated and decided by the Court.

13.  The Issues are not as discrete and separate from the remaining questions for trial, as the Defendant has endeavored to suggest.  Determination of the Issues, dissected from the other questions, will in fact increase costs by duplication of work in preparation for split trials and the time for separate trials.

14.  I do not agree that by ordering split trials and having the Issues determined first, delay may be avoided as there can be a shorter trial of the Issues.  Having considered the conflicting evidence on the Issues, a preliminary trial on the Issues would involve more than 5 days.  A trial on the remaining issues, including evidence on the terms of the Sub-Contracts and their construction, and the valuation of the Works on the basis of the disputed final accounts, would involve another 4 or 5 days at least, even without expert evidence.  The current workload and schedule of the Court is such that a trial of 5 days cannot take place within 2020, which means that if there should be a preliminary trial on the Issues, which are determined against the Defendant, the overall resolution of the dispute will be delayed by 12 months, which cannot be just for the Plaintiff, even considering any costs that may be saved by having separate trials.  As the authorities have shown, “just” means fair to both sides, without one side or the other gaining an undue advantage by a separation (Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd HCMP 172/2016, 1 April 2016). 

15.  Moreover, on the facts as pleaded in the Defence, and in the Reply and Defence to Counterclaim, and on the evidence filed on behalf of the parties for this application, it would appear to be clear that notwithstanding the Defendant’s pleaded case that the Settlement Agreement was made in late 2014, the payment of HK $5.8 million was never made by the Defendant to the Plaintiff, despite the fact that the Defendant had received final payment from the Employer, despite the Plaintiff’s demands for payment in and before November 2016, and despite its service of Notice of Arbitration on the Defendant in July 2017 prior to the institution of these proceedings.  Even if the Court should accept the Defendant’s pleaded case, that the sum of HK $5.8 million was only to be paid after the Defendants received payment from the employer, it can hardly be said that a reasonable time for payment to the Plaintiff had not on the facts lapsed, such that it was open to the Plaintiff to claim that it was discharged from the Settlement Agreement, if any was reached, and to claim payment of the whole outstanding sum under the Sub-Contracts. 

16.  On the pleaded facts and evidence, there is a real risk that determination of the Issues would be against the Defendant, and that the resolution of the remaining issues would be seriously and unfairly delayed.

17.  Following on from paragraph 15 above, it can also be seen that even if, upon the preliminary trial, the Court should find that there was a Settlement Agreement concluded, the finding may well be that the terms are that the Plaintiff would not pursue its claims under the Sub-Contracts only if the Defendant performed its agreement to pay HK$5.8 million.  The trial on the amounts claimed by the Plaintiff to be due under the Sub-Contracts would still have to proceed.

18.  In my judgment, the Defendant may have exaggerated the costs of a trial of the remaining issues that may be saved by ordering a trial of the Issues first, but the Plaintiff has similarly exaggerated the simplicity of the trial of the remaining issues.  

19.  In all, having regard to the facts in dispute as defined by the pleadings in this action, I am not satisfied that the Defendant has discharged its burden of proving that there should be departure from the general rule of there being one trial of all issues, and that it would be just and convenient to the parties to order a separate trial of the Issues.  The application is dismissed, with an order nisi that the costs are to be paid by the Defendant to the Plaintiff, with certificate for counsel.