XCHRX PENTA-OCEAN CONSTRUCTION CO. LTD. v. TREASURE PROPERTIES LTD. AND ANOTHER

1998, No. CT 121

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

_____________

JUDGMENT

_____________

1. On 18 November 1998, the plaintiff applied, on very short notice to the first defendant, for an injunction restraining the first defendant from making a demand for payment under a performance bond and restraining the second defendant from paying or accepting or admitting liability under that bond. The plaintiff obtained an order to that effect until a return day before me. On the same day, the plaintiff issued a summons returnable before me on 10 December 1998 claiming the same relief. Also on the same day, the plaintiff issued a writ of summons. The endorsement of claim says that there was a construction contract between the plaintiff and the first defendant, and, under that contract, the plaintiff arranged for the issue of a performance bond by the second defendant. The plaintiff pleads that the first defendant has claimed under the bond, but no payment is due. The plaintiff also says that the first defendant owes money to it under interim payment certificates and retention money. The plaintiff claimed the injunctions and payment of the money alleged to be due by the first defendant. On 21 November 1998, the plaintiff amended the endorsement so that only the injunctions were claimed. The plaintiff did this, I assume, because disputes between the plaintiff and the first defendant are subject to arbitration. Indeed, on 4 December 1998, the first defendant issued a summons seeking a stay because the parties had agreed to submit to arbitration the matters in respect of which the action is brought.

2. At the commencement of the hearing before me, Mr Fisher told me that the plaintiff was discontinuing any proceedings against the second defendant. Having regard to the fact that the injunctions were obtained, and are sought to continued, in relation to the performance bond, and the only possible contractual relationship behind this bond that the plaintiff has is with the second defendant, this, I thought, was odd.

3. The plaintiff faces a number of difficulties in seeking to have the injunctions continued, but it is sufficient to deal with only one. It is clear law that the courts will not grant injunctions to restrain payment under a performance bond except where it is pleaded, and there is evidence, that the holder of the bond has committed a fraud, and this fraud is known to the issuer of the bond. Fraud is not pleaded or alleged by the plaintiff. Absent fraud, the plaintiff has no cause of action against the first defendant under the bond. The only relationship established by the bond is between the first and second defendants. The interlocutory injunctions should not have been sought because the plaintiff had no case to obtain them. The plaintiff's summons before me must be dismissed, and the injunctions discharged.

4. As to the first defendant's summons for a stay in favour of arbitration, the plaintiff has amended its claim so that the payments in dispute are no longer sought, and the plaintiff issued a notice of arbitration on 8 December 1998. Nevertheless, the writ has not been withdrawn by the plaintiff, and the matters in dispute alleged in that action are matters that the parties agreed to refer to arbitration. Accordingly, the first defendant is entitled to have the disputes referred to arbitration. I make an order in terms of the first defendant's summons of 4 December 1998.

I have heard argument on the question of costs. Clearly, the plaintiff must pay the costs of the action, the application for stay by the first defendant and its own applications. Mr Scott argues that I should order that these costs be assessed on a higher scale. I agree. The plaintiff's action and applications were totally misconceived. They should not have been commenced even on an inter partes basis with adequate notice. In justice, there is no reason why the first defendant should recover only party and party costs. The costs are awarded to the first defendant on an indemnity basis.