GUANGDONG WATER CONSERVANCY AND HUDRO-POWER ENGINEERING DEVELOPMENT CO LTD v. VINCY ENGINEERING AND TRANSPORTATION CO

No. 6418 of 1984

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The action is one which was begun by the issue of a writ on the 19th September this year by the plaintiff company seeking a final injunction in substance in the same form as what is now being granted by way of interlocutory relief, and damages for trespass and breach of contract against the defendant.

2. An ex parte order was obtained on the 19th September this year from Mr. Justice Macdougall who granted an interlocutory injunction substantially in the terms as now sought. He discharged that injunction on the 21st September 1984, that is two days later. The file indicates that Mr. Yeung, the defendant, attended when the ex parts application was made before Mr. Justice Macdougall and that he subsequently applied for discharge after he had filed an affidavit in which he gave his version of the dispute.

3. The learned Judge evidently considered that the ex pare injunction should go and that the matter should be dealt with inter partes. There is nothing on the file that I can see to indicate what his reasons were. Perhaps that can be gone into on the question of costs.

4. Having obtained their ex parte order on the 19th September, the plaintiffs issued their inter partes summons on the 20th September 1984 to continue the ex pare order. I gave them leave today to amend their summons which applied for relief that was too wide for an interlocutory application. Today I have to deal with the application which in substance requires the defendant to remove its personnel and equipment from his site and not to interfere in any way with the activities on the plaintiff on the site.

5. There has been a welter of evidence filed on both sides but I think it can fairly be said that, as leading counsel for the plaintiff has suggested, it is not necessary to examine the evidence in detail. I have read the evidence through before the hearing but during this hearing neither counsel submitted me to the reading of all the affidavits and affirmations in this case. The reason for that is clear because the relevant circumstances deposed to by the various witnesses can be stated quite shortly.

6. The plaintiffs in this case are the principal contractors who contracted with the Housing Authority to erect a flyover on the site in Hong Kong and the principal contract is to be performed in two years from the 30th July 1984.

7. The plaintiffs have a Class C contractor's licence in Hong Kong and have work worth about HK$800,000,000.00 in hand under twenty contracts with Government Authorities. In substance it is a Mainland China Company and the shares are owned by the Guangdong Provincial Government and so it is described by one of the deponents on behalf of the plaintiff as being state-owned.

8. The substance of the plaintiff's case can be put shortly. It contends that it sub-contracted with the defendant. The two principal individuals who were involved here are Mr. Xu Jing Biao who is the principal figure she represented at all material times the plaintiff company and Mr. Yeung who is the partner with his wife in defendant firm. It is now confirmed that the defendant and his wife are rightly described as a firm.

9. What the plaintiff alleges in substance is that an oral contract was made whereby the plaintiff as the principal contractor sub-contracted with the defendant. There is an issue as to whether it is a sub-contract or an agency but I think it can be fairly described as having been a sub-contracting transaction or putting it in a more colourless way a contract whereby the plaintiff contracted with the defendant firm that the defendant firm would carry out the work and obligations of the plaintiff under the head contract with the Housing Authority but on the footing that there would be representatives of the plaintiff company on site.

10. This is perhaps a delicate question, but I understand the principal contract prohibited sub-contracting. But be that as it may, an oral contract is alleged under which it was agreed between the parties that the defendant would carry out the relevant work and subject to various terms, one of which, the plaintiff company contends, was that the defendant should provide a deposit. Initially, it is contended, there was to be a HK$2,000,000.00 deposit and the plaintiff's case is that eventually the plaintiff agreed to reduce the amount to $1,000,000.00.

11. I emphasise that the defendant denied this and there is a mass of evidence about this. But it is quite clear that this is an issue in which credibility will be a vital matter between Mr. Yeung for the defendant and Mr. Xu Jing Biao for the plaintiff as to just what was agreed.

12. The parties fell out when attempts were made to put the contract into writing because there was an issue as to what precisely had been agreed. The plaintiff let the defendant onto the site before this matter had been resolved and unhappily the precise written contract could never be agreed because the parties differed as to what the terms of the oral agreement were on a number of matters including the margin that was to be paid by the plaintiff in respect of the work by the defendant, or rather the margin the plaintiff was to retain from the contract price at the end of the day.

13. The result was that the parties having differed and being unable to come to terms, particularly with regard to the deposit, the plaintiff required the defendant firm to leave the site with some fairly firm indication, particularly in the letter dated the 13th September 1984 written to the plaintiff by the defendant, to indicate that the defendant did agree to get off site on stipulated terms.

14. Be that as it may, the position now is that the defendant, if this matter were to go to trial, would seek to resist the plaintiff's claim and to contend that the terms of the contract were not as alleged by the plaintiff. In particular the defendant would allege that there never was an agreement that there should be a $1,000,000.00 deposit from the defendant before the work proceeded. It is clear that the plaintiff claims that it determined the contract properly and rightfully because the defendant failed to produce the deposit and thereafter the defendant refused to get off the site.

15. There is a lot of evidence about what happened on the site in the course of September and October. The substance of the evidence is, in accordance with my understanding, that the defendant had remained in the southern end of the site, that there have been a number of incidents, indeed I would fairly describe them as physical imbroglios, on the site, the various representatives on each side getting involved in virtually physical conflict. The police had been called in and so on, but the practical effect has been that because the defendant insists on staying on the site and the plaintiff insists on the defendant getting off, the work has got out of time and each side of course blames the other for this.

16. A letter was sent on the 11th October of this year by Mr. Walters, the Senior Resident Engineer of the Housing Authority to the plaintiff company invoking clause 66 of the General Conditions in the principal contract, expressing the opinion that the rate of progress of the work is too slow to ensure completion of the work within the time for completion prescribed in the principal contract, requiring the plaintiff to proceed with diligence and warning that if after receipt of the letter the plaintiff fails to proceed in accordance with the contract the Senior Resident Engineer, after the expiration of fourteen days from the date of the letter will certify to the Director that in his opinion the plaintiff has failed to proceed with the work with due diligence and will "actively consider advising the Director to exercise his powers under clause 110 of the General Conditions." Those powers are powers for the determination of the contract for various breaches.

17. So it is quite clear that whoever's fault it might eventually be held it to be if matter went to trial that the principal contract is now in some peril. I think that is putting it at its lowest and there is complete deadlock on the site. The defendant remained on the southern end of the site, which I understand to be the one which is the most important as far as getting on the work is concerned and there is a complete seize up for all practical purposes until this matter is resolved.

18. This being an application for an interlocutory injunction there seem to be no special circumstances why the normal American Cyanamid principles should not apply. Endeavouring to apply those principles the first question that the court has to consider is whether, if the plaintiff were to succeed in the trial in establishing his right to a permanent injunction, it could be adequately compensated by an award of damages for the loss it would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial.

19. It seems to me that, without going into the question as to whether or not the defendant would be good for these damages at the end of the day, I am not satisfied, doing the best I can, with the evidence before me that the damages would be an adequate remedy to the plaintiff.

20. The first and obvious ground for this view is, as Mr. Sakhrani has rightly contended, that the plaintiff is a contractor who although it has only been in the business here for three years, holds a Class C licence which has a considerable value and the plaintiff has some twenty contracts with the Government Authorities. If this contract is determined, as it could well be if matters remained as they are, by the Housing Authority there must be considerable detriment and injury to the plaintiff in his reputation as a Government contractor. The failure to get off the ground for contractual purposes with this contract must be a factor which would be seriously considered by certainly the Housing Authority and no doubt other governmental or quasi governmental authorities before employing the plaintiff again on contracts of this nature, particularly having regard to the circumstances under which this contract has run into this state of deadlock. The quantity of damages that might be payable under this head seems to me to be quite impossible to quantify and the damages on a common law basis cannot be said to be adequate.

21. Furthermore, I find considerable difficulty in quantifying the damages which the plaintiff might sustain under this very contract if it were to succeed and the court were to hold that the contract is as claimed by the plaintiff. Then I ask myself if an injunction were refused here what would be the likely damages that the failure to obtain the injunction would inflict on the plaintiff and I find it a very difficult question to answer. I find the damages very difficult to quantify respectively because nobody knows what could happen. The situation is one in which, as the matter stands, where the plaintiff would on the face of it be within its rights if the contract is as it claimed it is, to refuse to pay the defendant for any further work it might see fit to do; and that no doubt would result in the defentant refusing to do any more work; and the deadlock might continue indefinitely.

22. At the end of the day, there might well be a very substantial claim by the Housing Authority for the breach of the principal contract. At whatever date it might be determined there would no doubt be a claim for damages in one form or another. Even if the work were completed by the defendant there could possibly be very substantial claims for liquidated damages as a result of delay. For my part I find it difficult if not impossible to put any sensible figure on the likely damages which the plaintiff might incur under this head.

23. So I then have to move to the next stage of American Cyanamid exercise and ask myself whether if the defendant were to succeed in the future trial and to establish his right to remain on site, to continue with the contract as he claims on the terms that he claims, whether the defendant firm would be adequately compensated under the plaintiff's undertaking as to damages for the loss it would have sustained by being prevent from remaining on site and continuing with the work and completing the contract.

24. Counsel, Mrs. Yew, for the defendant has rightly conceded that the answer to that would be that damages would be an adequate remedy because the damages have already been quantified at the figure of about 1.4 million by Quantity Surveyors on behalf of the defendant firm. I add that the plaintiff does not accept that figure and there is yet another issue on that but it is quite clear from the quantification by the Quantity Surveyors, and also from the statement of claim of the defendant in an action which it has begun independently against the plaintiff in respect of this matter, that a figure of about 1.5 million dollars would be the appropriate figure of damages at common law.

25. Mr. Sakhrani for the plaintiff has made it clear that the plaintiff company is prepared to fortify its undertaking as to damages in this case. Bearing in mind that the plaintiff is in substance a foreign company, if I can use that expression in relation to a Mainland China Company in the modern context, it seems to me to be right that there should be fortification. Any doubts as to the financial stability of the plaintiff company seem to me to be capable of being resolved by fortification. here. When I make the order I shall have to give directions that there will be suitable fortification in the sum of 1.5 million as a condition for the granting of the injunction.

26. Having come to the conclusions above it seems to me that I should grant the relief as sought. I add, although it is not necessary to go further in the American Cyanamid exercise, that when I consider the general balance of convenience it seems to me that the decision that I have come to is consistent with the approach adopted by the editor of Hudson on Building Contracts in the first supplement, 10th edition, where in criticizing the decision of Sir Robert Megarry V. C. in Hownslow London Borough Council v. Twickenham Garden Developments Limited [1971] Ch. page 233. The situation that he is referring to is not precisely the same as this one but it is basically one in which an employer was seeking to get a contractor off site after claiming to determine the contract. He makes the following observation :-

"Apart from the overwhelming practical objection that the decision produces a position of legal stalemate, with a contractor in possession unable to insist on being paid and an employer out of possession unable to make arrangements for completion of the project, and apart from the objection of first principle that such a situation could not possibly represent the contract intention, since it deprives any clause for re-entry based on controversial facts of any practical value, and presents the contractor with what is in effect a lien on uncompleted work, ............."

and then he goes on and deals with legal criticism.

27. It seems to me as a matter of common sense that, if the position is permitted to continue as it is now, the practical position will be that the defendant will in effect be obtaining specific performance or seeking to obtain specific performance of a contract in the terms he alleges to be the true contract which in principle the employer is not usually entitled to do. Furthermore it seems to me that the position will be generally aggravated by the fact that the plaintiff, if he is right in alleging the contract upon which he relies, would be fully entitled to refuse to pay the defendant for any work he saw fit to do. The result, as I have said earlier, would again be complete deadlock, further delay and the strong likelihood that the Housing Authority, though patient it may be in normal circumstances, would be constrained to determine the head contract.

28. For those reasons, I would grant the relief sought.