ARS ENGINEERING LTD v. SKYFORCE ENGINEERING LTD

HCA 2552/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2552 OF 2014

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D E C I S I O N
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1.  By its Summons dated 21 April 2015, the plaintiff seeks:

(i) final judgment in this action against the defendant for the sum of HK$3,583,800.40 or alternatively HK$1,983,800.40, or a sum to be decided by the Court, with interest and costs.

(ii) an order that certain paragraphs of the defence be struck out on the basis that the same may prejudice, embarrass or delay the fair trial of this action, and/or are otherwise an abuse of the process of the Court.

The plaintiff’s position

2.  The plaintiff was at material times the defendant’s sub‑contractor in respect of electrical works carried out at the Café de Coral Project at the Tai Po Industrial Estate.  The defendant in turn worked as the building service contractor for the main contractor.  The original contract price was HK$9,300,000, in addition to which the plaintiff was requested to carry out certain additional works under variation orders (“VO”).

3.  The plaintiff claims the balance of the contract sum in the amount of HK$3,583,800.40 under Invoice Number INV0001‑14/ARSHK‑114‑11, dated 7 February 2014.  This is referred to in the pleadings as “Invoice No 3”.

4.  The plaintiff submits the only dispute between the parties is the balance of the contract price which the plaintiff is entitled to receive.

5.  The plaintiff says that Invoice No 3 consisted of two items, namely:

(i) The last balance of the original contract price being 5% of the retention money in the sum of HK$454,353.40.

(ii) The outstanding balance of the VOs in the sum of HK$3,129,447.00.

6.  With respect to the 5% retention money in the sum of HK$454,353.40, the plaintiff says that according to its contract with the defendant, the retention money was due to be released three months after the work was practically completed, and as the work has been practically completed the same is now due and owing.

7.  As to the outstanding balance of the VOs, the plaintiff appears to accept that the major dispute is the applicable rate to be adopted for assessing the plaintiff’s VO claim.  The plaintiff notes that the defendant has pleaded in its defence at paragraphs 13(5) and (6) that there are implied terms pursuant to the standard practice of the construction industry and/or the parties’ previous course of dealings that:

(i) the ASD Rate Book (which refers to the Schedule of Rates for Term Contracts for Building Works issued by the Architectural Services Department), or

(ii) the star rate with a 30% to 50% discount adopted

are applicable in this case.

8.  The plaintiff says however that the defendant has adduced no evidence that the ASD Rate Book or star rate with a 30% to 50% discount was ever applied in any of the plaintiff’s projects in the past.

9.  The plaintiff further says that the ASD Rate Book is never used for private project use.

10.  The plaintiff submits that “it is clear that the rate had already been agreed between the parties and no further assessment is required” and refers to evidence as to whether or not only the quantity and not the rate was assessed during the parties’ joint assessment.

11.  The plaintiff points to the defence at paragraph 13(4) where the defendant has pleaded that there is an implied term that the interim payments made to the plaintiff are subject to the defendant’s final checking when the final account is assessed.  The plaintiff submits that the parties’ previous course of dealings is insufficient for the Court to imply the terms now contended for by the defendant.

12.  The plaintiff further submits that after the signing of the VO joint assessment, the defendant had never commented on or objected to the rates, and that the defendant has now “sprung out a new invented defence”; the same being “an after-thought or a fabrication”.

13.  With regard to the admitted payment by the defendant to the plaintiff of HK$1,870,362.52, the plaintiff denies that it has ever accepted this sum in full and final settlement of its certified claims under Invoice No 3, and if that is wrong, it should be entitled at least to summary judgment for the balance claimed at HK$1,983,800.40.

14.  With respect to the strike out application, the plaintiff complains that the parts of the defence which refer to another project upon which the parties were engaged, called the Kei Wah Project, is unrelated to the matters now in dispute and therefore, there being no set-off or counterclaim relating to the Kei Wah Project, the averments relating to that project should be struck out.

The defendant’s position

15.  The defendant’s case is that the sum of HK$3,583,800.40 (ie the retention money in the sum of HK$454,353.40 and alleged balance of the VOs in the sum of HK$3,129,447.00) is not the accurate balance owed in respect of the Café de Coral Project.

16.  Furthermore, that on 10 November 2014 the defendant paid a sum of HK$1,870,362.52 in full and final settlement of Invoice No 3, together with three other invoices due to the plaintiff. The defendant says that the same exceeded all net certified sums payable or due to the plaintiff.

17.  The defendant says that the assessment in relation to the VOs for the Café de Coral Project was a provisional assessment of the quantity of works only, and that the assessment had not dealt with the applicable rates.  The defendant says that neither the VOs nor the standard terms set out the applicable rate for the works and services to be provided, save that standard terms provided that the additional works be completed at the contractual unit price or at a reasonable price.  The defendant says that what is a reasonable rate to be applied to the VOs for the Café de Coral Project is now subject to serious dispute.

18.  The defendant’s case is that where there is no tender’s rate, the Rate Book may be adopted as the base rate with a further discount of 30 to 50%.  Alternatively, a 30 to 50% discount star rate may be adopted.

19.  The defendant submits that expert evidence on quantifying the proper sums to which the plaintiff was entitled and/or to determine the applicable rates for such quantification, needs to be adduced at trial.

20.  The defendant as noted also prays in aid of implied terms as well as the parties’ previous course of dealings in the resolution of these issues.

21.  There is also a dispute as to whether a Mr Chung, the defendant’s site engineer, who attended and signed the VO joint assessment sheets on behalf of the defendant, had made it clear that the assessment of the VOs issued under Café de Coral Project were provisional, and related only to the quantities rather than the rates adopted.

22.  The defendant submits that consistent with common practice and the parties’ previous dealings, the provisional assessment of the VOs is in any event subject to the issuance of the final account, and that no final account was issued at the time the plaintiff made its various claims.  The defendant also seeks to make various deductions from the amount to be certified or assessed being material costs in the sum of HK$314,459.70, cleaning costs in the sum of HK$250,372.54 and an EMSD penalty in the sum of HK$10,000.

23.  As noted the defendant says in any event that it has made payment of HK$1,870,362.52 which has completely extinguished all entitlements due to the plaintiff in respect of Invoice No 3 and three other invoices.

Relevant principles

24.  The principles applicable to an application for summary judgment are well established.  Summary judgment procedure is entirely inappropriate where the plaintiff’s entitlement to recovery of any sum is subject to any serious dispute whether of fact or of law.  The Court must determine whether what the defendant says is believable as opposed to whether its version of events is to be believed; and if it is, whether what the defendant says amounts to an arguable defence in law.

25.  In respect to an application to strike out, again the principles are well established.  It is only in a plain and obvious case that the Court should exercise its summary power to strike out any pleading.  The Court looks at the pleadings as a whole in deciding whether pleas made are scandalous, frivolous or vexatious or may prejudice or delay the fair trial of an action.  It does not micro‑examine every pleading and strike out those parts which are not strictly necessary for that pleading, see the judgment of Mr Justice Chow in Ma Toi Ling & Anor v Lam Man Kwong HCA 2208/2014 (unreported, 5 January 2016).

Analysis

26.  In my view it is plain that the matters raised by the defendant in its defence are all matters for trial.  My reasons can be stated shortly and simply.

27.  There is a serious dispute as to the amount of monies allegedly owed by the defendant to the plaintiff.  With regard to the 5% retention money the defendant says that it has paid this sum to the plaintiff, the same being included in the payment of HK$1,870,362.52, admittedly received by the plaintiff.

28.  As to the applicable rate, the defendant’s contention that the ASD Rate Book is never used for private projects appears to be contradicted by paragraph XXIX of the ASD Rate Book which, in my view, arguably makes it clear that there is no prohibition upon the parties themselves using the ASD Rate Book.

29.  The defendant’s assertion that the rate had already been agreed between the parties and that therefore no further assessment is required is, in my view, responsibly contested in the defendant’s pleadings.  Whether the defendant did purport to certify the applicable rates is a factual issue which must be determined at trial.

30.  As noted, the defendant has pleaded in paragraph 13 of its defence various implied terms, including paragraph 13(3) that the interim payments made to the plaintiff are subject to interim and final certification and assessment of both the main contractor as well as the defendant.  Further in paragraphs 13(5) and (6) that the ASD Rate Book, further or alternatively that the star rate may be adopted, pursuant to the standard practice of the construction industry or the parties’ previous course of dealings.  The implied terms pleaded by the defendant are all in my view matters for trial.

31.  The further deductions that the defendant seeks to make in relation to the purchase of materials and cleaning services, are again matters which need to be decided at trial.  The plaintiff’s allegation that the further deductions, and indeed the reliance on the ASD Rate Book rates are a “new invented defence” and are “after‑thought and/or fabrication”, underpin my view that these matters simply cannot be dealt with in a summary judgment application.

32.  With regard to the plaintiff’s strike out application this too in my view has no merit.  The defendant’s case is that all amounts claimed by the plaintiff, including the invoices relating to the Kei Wah Project, have been finally settled by the acceptance of a cheque in the sum HK$1,870,362.52.  In my view the paragraphs now sought to be struck out by the plaintiff are plainly relevant to the factual background, and to the defendant’s defence that it has satisfied the sums now claimed by the plaintiff.

Conclusion

33.  The plaintiff’s application for final judgment in this action is dismissed.

34.  The plaintiff’s application to strike out paragraphs 6, 7, 11(2), 18, 23 to 24 and 28 to 32 of the defence is dismissed.

35.  As to costs, there will be an order nisi, to become absolute 14 days from the date of this Decision.  The plaintiff will forthwith pay to the defendant the costs of and occasioned by its application for final judgment and its strike out application, to be taxed if not agreed.