BUILD KING CONSTRUCTION LTD formerly known as KADEN CONSTRUCTION LTD v. SAM WOO BORE PILE FOUNDATION LTD AND ANOTHER

HCCT 4/2023

[2025] HKCFI 894

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 4 OF 2023

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DECISION

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1.  This is the Defendants’ application to re-amend their Amended Defence and Counterclaim with the addition of a new cause of action.

Issues

2.  The application is resisted by the Plaintiff on 3 grounds, namely, (a) limitation period; (b) no sustainable cause of action; and (c) fictional quantum.

Background

3.  In brief, the 1^st Defendant was the Main Contractor in respect of the foundation and associated works (“Works”) for the Hospital Authority (“HA”) as the Employer for the expansion of United Christian Hospital (“Project”). The Plaintiff was the Sub-Contractor of the 1^st Defendant for the majority of the Works. A smaller part of the Works was carried out by the 1^st Defendant.

4.  There is a Sub-Contract executed by the Plaintiff and the 1^st Defendant on around 4 January 2017 but dated 22 August 2015. There is a dispute whether the contract between the Plaintiff and the 1^st Defendant was solely embodied in that written document. The 1^st Defendant says that the contract was partly oral. For convenience, the contract between the parties is referred to as “the Sub-Contract”.

5.  The Works were split into Section 1 Works and Section 2 Works. The Works of both Sections were commenced on 22 August 2015 and substantial completion occurred for Section 1 Works and Section 2 Works on 17 March 2020 and 2 June 2020 respectively.

6.  In addition to the Sub-Contract, about 17 months after the commencement of work, on 4 January 2017 the Plaintiff signed a Project Management Services Agreement (“PMSA”) with the 2^nd Defendant (a sister company of the 1^st Defendant) who, according to the PMSA, had been awarded the sub-contract for the provision of project management services by the 1^st Defendant for the Project. Under the PMSA, the Plaintiff was to provide project management services on behalf of the 2^nd Defendant on a back-to-back basis with the 2^nd Defendant’s sub-contract from 15 July 2016 until the issuance of maintenance certificate. The PMSA was backdated to 1 June 2016.

7.  These proceedings were issued on 18 January 2023 and in which the Plaintiff made 3 claims: (a) despite the certification of the total value of works executed by the Plaintiff, there is outstanding payment under the Sub-Contract of about HK$53 million; (b) outstanding refund of deposits paid by the Plaintiff (and certified by the 1^st Defendant) in the sums of HK$405,000 (paid to Environmental Protection Department) and about HK$47,000 (paid to Water Supplies Department); and (c) outstanding payment for project management services under the PMSA due to the extension of completion dates for Section 1 Works and Section 2 Works in the sum of about HK$1.74 million. Claim (c) is made against the 2^nd Defendant.

8.  According to the Amended Defence and Counterclaim re-filed on 22 September 2023, the issues raised in defence were (a) for the amount due under the Sub-Contract, there was an over-certification which arose from contract price fluctuations of about HK$13.49 million; (b) breach of fiduciary duty by the Plaintiff in carrying out Maintenance Service Work under the Main Contract without the 1^st Defendant’s consent; (c) the PMSA was a lump sum contract and the Plaintiff was in fact overpaid by about HK$5.8 million; and (d) the outstanding deposits were included in the Account.

9.  For (a), the 1^st Defendant claims to be entitled to deduct and/or set off against the Plaintiff’s claim. For (b), the 1^st Defendant claims an account of profits or equitable compensation in the alternative. For (c), the Plaintiff is liable to return the overpayment to 2^nd Defendant.

10.  The proposed re-amendment seeks to introduce a new claim of breach of contract on the part of the Plaintiff in failing to manage the Project, described as “Main Contractor’s Management Obligation” which the Plaintiff had allegedly undertaken under the Sub-Contract.

11.  The pleaded value of the new claim is about HK$163.5 million, being 10% of the total value of the work done for the entire Project on the basis of total failure of consideration by reason of the Plaintiff’s complete failure to manage the Project.

12.  There are two points made by Mr Pennicott SC, who appeared for the Plaintiff, which are worthy of note. First, there appears to be no complaint by the Defendant about the lack of management for the Project until the re-amendment surfaced 4 years after completion of the Works. Second, it appears that the 1^st Defendant was adequately paid by the Employer. This is consistent with the fact that there was no complaint, and hence there is no damages claim but an alleged restitution claim based on total failure of consideration.

13.  The only reply made by Mr Chan SC, who appeared with Ms Ng and Mr Cheung for the Defendants, is that the Final Account between the 1^st Defendant and the HA has not been signed off, although he was unable to assure the court that his instruction was based on adequate support.

Limitation

14.  Prima facie, if the new claim (being one in contract) is accrued more than 6 years prior to the date of Writ, ie, before 8 January 2017, it is time-barred under the Limitation Ordinance, Cap 347 (“Ordinance”).

15.  Paragraph 13AA of the draft Re-Amended Defence and Counterclaim pleads that: “Since or around the commencement of the Project in August 2015, the 1^st Defendant and 2^nd Defendant aver that wrongfully and in breach of the Subcontract Agreement and/or the PMSA, the Plaintiff had failed to manage the entire Project as if it was the Main Contractor.”

16.  This averment is unequivocal in that the Plaintiff’s alleged breach occurred in August 2015, well before 6 years prior to the date of the Writ. It follows that, prima facie, the claim is made outside the limitation period.

Applicable principles

17.  A 3-stage test is to be applied when approaching an application for amendment which raises a limitation issue, as explained by Ng J in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd, unrep, HCA 2114/2007, 18 July 2016, [16] :

“ Where a party raises a limitation objection to proposed amendments to pleadings, it is useful to adopt the ‘three-stage test’ set out in Ballinger v Mercer Ltd [2014] 1 WLR 3597 at [15], as further explained in Michael Agapios Diamandis v Sir David Seton Wills [2015] EWHC 312 (Ch) at [46]:

(1) Stage 1: Is it reasonably arguable that the opposed amendments are outside the applicable limitation period? If not, then the amendments fall to be considered in accordance with the general principles governing amendment applications.

(2) Stage 2: If the answer to (1) is yes, do the proposed amendments seek to add or substitute a ‘new cause of action’? If not, then again the amendments fall to be considered in accordance with general principles.

(3) Stage 3: If the answer to (2) is yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim? If not, the amendments cannot be allowed. If yes, then the court retains a discretion to allow or refuse the amendments in accordance with general principles.”

18.  With respect, I venture to suggest that for (2) it may be desirable to adhere to the terminology of s.35 of the Ordinance, ie, “new claim”, which was defined under s.35(2) to mean “any claim by way of set-off or counterclaim, and any claim involving [for the present purpose] the addition or substitution of a new cause of action”. In respect of (3), again it may be desirable to following the formulation used in s.35(6)(a) (and O. 2, r. 5(5) of the RHC), ie, “arise out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claim in the action by the party applying for leave to make the amendment”.

19.  The arguments advanced by Mr Chan are: (a) the new claim is used as a defence which is permissible even if the claim is statute-barred; (b) continuing breaches of contract; (c) the new cause of action arises out of the same or substantially the same facts; and (d) deliberate concealment of relevant facts by the Plaintiff.

Defence

20.  There is no dispute that the Ordinance does not apply to a new defence. It was pointed out by Mr Chan that in para 13AL of the proposed re-amendment the new claim was pleaded as a defence of abatement of price. It is reasonably clear that abatement of price is a defence: Chitty on Contracts, 35^th edn, [30-008]. Therefore, I agree with Mr Chan that this plea is not affect by limitation period. I shall deal with below whether the amendment in question should be allowed under general principles on amendment of pleadings.

21.  Mr Chan conceded that if this application only succeeds on the ground of defence, then the counterclaim made in the amendment based on the new claim should be deleted in conjunction with prayers (1B) of the 1^st. Defendant and (1A) of the 2^nd Defendant.

Continuing breaches

22.  The Defendants say that the new cause of action against the Plaintiff for breach of Main Contractor’s Management Obligation is not time-barred. They rely on Chitty on Contract, 35^th edn, vol 1, [32-035], where the concept of continuing breaches was elaborated as follows :

“Successive and continuing breaches Where the innocent party elects to treat himself as discharged from further performance consequent upon a breach of the contract, time begins to run immediately … But if there are one or more breaches which do not give rise to a discharge either because they are not sufficiently fundamental or because the innocent party declines to accept them as having that effect, each will give rise to a separate cause of action. There may also be a series of breaches of a single covenant. Examples are failure to pay instalments of interest or rent. Or the breach may be a continuing one, e.g. of a covenant to keep in repair. In such a case the claimant will succeed in respect of so much of the series of breaches or the continuing breach as occurred within the six (or 12) years before action brought. In Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp the failure of a solicitor to register an interest in land was held to constitute a continuing breach of his retainer, so the client’s cause of action did not become barred until six years after registration ceased to be possible. But in subsequent cases involving similar facts this decision has either been distinguished or doubted; and the Court of Appeal has held (albeit it in a case not involving any question of limitation) that it is now to be regarded as wrongly decided. Time will therefore start to run when the act should have been carried out.”

23.  Mr Chan submitted that there are subsequent authorities consistent with Midland Bank Trust Co Ltd, namely, 2 Entertain Video Limited v Sony DADC Europe Ltd [2020] EWHC 972(TCC), [251]-[252] and Equitas Ltd v Walsh Bros & Co Ltd [2013] EWHC 3264 (Comm), [59]-[71]. In [64] of Equitas, Males J identified the key elements of continuing duties, namely, the relationship of the parties and whether the particular obligation in question is such as to give rise to a continuing obligation. In [69], the learned Judge applied the principles to the case before him :

“ The question, therefore is whether on the facts of the present case there are features of the parties’ relationship and of a Lloyd’s broker’s obligation to collect and remit funds which point to a conclusion that the obligation is after all a continuing obligation. I accept that this case has the features identified by Equitas to which I have referred. The parties’ relationship was a long-term continuing relationship in which the broker’s role in collecting and remitting funds was central, in which reinsurance claims would be expected to come in and need to be dealt with over a period of years, with the broker under a continuing obligation to maintain accounts and administer the syndicates’ reinsurance policies generally, and with heavy reliance known to be placed on the broker by the syndicates. The broker’s obligation in essence was to administer the syndicates’ accounts in a manner which ensured that the syndicates would not be kept out of funds to which they were entitled. In some respects this relationship was more akin to the example given by Mustill L.J. in Bell v Peter Browne & Co of a solicitor with a continuing retainer to protect the interests of his client generally, which was contrasted with the facts of Bell v Peter Browne & Co itself, where the solicitor was retained for a one off transaction. I consider that the combination of features in the present case does suggest not only a continuing relationship, but also a continuing obligation.”

[emphasis added]

24.  I can see that on the basis of the above principles, it is arguable that the Plaintiff’s alleged duty to manage the Project was a continuing obligation such that every day of failure to fulfil the obligation gave rise to a fresh cause of action.

25.  I have been referred by Mr Pennicott to the recent judgment of In Media Trust SPA v BGB Weston Ltd [2024] EWHC 3277 (KB), [13(iii) and (iv)], where Spencer J identified a number of applicable principles on limitation. Amongst which was that the court should not determine seriously disputed questions of facts on an interlocutory application, and this extends to issues of law which are not straightforward, clear or obvious; or issues of law or facts (or both) which required detailed argument and mature consideration.

26.  In my view, these principles are applicable here on the issue of continuing obligation. Apart from the fact that the new cause of action is hotly contested by the Plaintiff, it is facts-sensitive to the case, eg, the Defendants’ allegation that they placed reliance on the Plaintiff for the due performance of the Main Contractor’s Management Obligation and in the administration of the entire Project, including the 1^st Defendant’s part of the Works. It is not appropriate for the court to determine such issue on an interlocutory application.

27.  Moreover, Mr Pennicott submitted that the new cause of action (or at least part of it) must be statute-barred even on the Defendants’ case because some of the breaches must have been committed prior to 18 January 2017 given the commencement of work in August 2015. It should be noted that there is no attempt by the Defendants’ to make any distinction to the alleged breaches which took placed before and after that date. Further, Mr Pennicott made the point that one indivisible amount is being claimed under the new cause of action.

28.  I agree with Mr Pennicott that the Plaintiff is only required to show that it has a reasonably arguable case on limitation, and it has done so in answer to the continuing obligation point. Thus, the amendments (with the exception of abatement of price) are arguably outside the limitation period. The relevant amendments should be disallowed so that the Plaintiff will not be prejudiced by the “relation back” principle. The Defendants, however, will suffer no prejudice (and they do not suggest the contrary) since they can issue a new Writ in respect of its new claim.

Arising from the same facts

29.  The remaining two arguments of the Defendants are of little merits and can be disposed of quickly.

30.  With respect, it is self-evident that the existing causes of action relied upon by the Defendants (see para 8 above) do not involve facts from which the new cause of action may arise. In his submission, Mr Chan pointed to the 2^nd Defendant’s claim of overpayment under the PMSA. With respect, that is an extremely tenuous connection. The PMSA claim is in fact a claw-back of payments made to the Plaintiff, which were applied for, assessed and paid by the 2^nd Defendant, based on the allegation that the PMSA was actually a lump sum contract. I agree with Mr Pennicott that this application is refused, the Plaintiff’s carrying out and fulfilment of its management obligations will not be an issue at the trial.

Deliberate concealment

31.  To his credit, Mr Chan did not press this point in his viva voce submissions but merely relied on what had been stated in the Defendants’ skeleton submissions.

32.  Section 26 of the Ordinance provides :

(1)  Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

…

(b)  any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

…

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

…

(3)  For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

33.  For the purpose of s.26(1)(b) of the Ordinance, as summarized in Lee Tsan Sum v Wong Pui Hon David [2010] 4 HKLRD 219, per Fok J (as he then was), [39]:

(1)  Concealment within the subsection means a deliberate concealment of relevant facts and the six-year period provided in the section starts to run from the date on which the concealment is discovered;

(2)  The burden rests on a plaintiff to establish that there has been a relevant concealment. Similarly, the burden is on a plaintiff to show that he could not have discovered the concealed facts without exceptional measures which he could not reasonably have been expected to take;

(3)  A fact relevant to a plaintiff’s cause of action is an act without which the cause of action would be incomplete. It is not relevant that a defendant may have concealed a fact which, if known, would merely go to strengthen an existing case;

(4)  The words “any fact relevant to a plaintiff’s cause of action” are to be given a narrower rather than wider interpretation: what must be concealed is something essential to complete the cause of action and it is not enough that evidence that might improve the claim is concealed, provided that the claim can be properly pleaded without it;

(5)  The section does not provide that the right of action must have been concealed from a plaintiff: it provides only that a relevant fact should have been concealed;

(6)  Although in most cases where the section applies, a defendant will have known the fact that he concealed was relevant, it is not essential to show the defendant must have known the fact was relevant to the right of action;

(7)  The section requires only that any fact relevant to the right of action is concealed and does not require that all facts relevant to the right of action are concealed.

34.  I do not see how these stringent requirements had been satisfied by the Defendants. Their case is simply that there was, in breach of management obligation on the part of the Plaintiff, no management service provide from day one. Given the fact that the 1^st Defendant was on site carrying out its part of the Works over a long period of time, periodic interim payment applications were made by it to the HA, and in turn it had certified and made payments to the Plaintiff as its Sub-Contractor, it is inconceivable that the 1^st Defendant could not have found out the relevant facts until, allegedly, the recent filing of the Plaintiff’s witness statements.

35.  With respect, the point has no merits and should not have been advanced to burden the court and increase the costs.

Amendment of pleadings principles

36.  Returning to the new plea of abatement of price. The principles can be found in Hsu Ming Chi v Lam Shu Chit, unrep, HCCL 8/2013, 22 October 2014, [13]-[18], where Ng J summarized them as follows :

“13. It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made ‘for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings’: Re Playmates Investments Ltd [1996] 4 HKC 577 at 582E–H (per Le Pichon J as she then was); Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at para 25 (per Cheung JA); Hong Kong Civil Procedure 2014 Vol 1 para 20/8/6.

14. Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation: Natamon Protpakorn v Citibank NA supra at para 25 (per Cheung JA).

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep., HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para 2.

16. Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication: VSC Building Products Co Ltd v Kono Insurance Ltd, unrep. HCA 947/2005, 9 September 2009, per A Cheung J (as he then was) at [22].

17. Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs: Re Playmates Investments Ltd supra at 582H, 584C (Le Pichon J as she then was).

18. Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize that the primary aim in exercising the powers of the court is to ‘secure the just resolution of disputes in accordance with the substantive rights of the parties’: RHC O 1A r 2(2).”

37.  The trial of this action has not been set down. Apart from Mr Pennicott’s misgivings about the state of the plea over the cause of action, I see no good reason to refuse the amendment to plead the abatement of price defence.

38.  In respect of the lack of a properly particularised plea. There are merits in Mr Pennicott’s submission that the Sub-Contract and the PMSA did provide for certain management obligations on the Plaintiff, and it is incumbent on the Defendants to plead what it was that the Plaintiff was required to do over and above those existing duties and how it had failed to do so.

39.  Mr Chan did not offer to provide particulars of the abatement plea. He relies on the Defendants’ allegation that the Plaintiff had obtained payment of the management duties which it did not carry out. I regret to say that this is both an unsatisfactory and unfair approach.

40.  As for the claim of HK$163.5 million without any foundation on loss, I am inclined to the view that it is a matter for the trial judge whether the restitution claim can be accepted. In any case, as a claim of abatement it cannot exceed the size of the Plaintiff’s claim.

41.  The lack of a properly formulated claim is a concern with merits. In my view, it is inappropriate to grant an amendment application which is keenly contested with the hope that proper particulars will be provided after amendment (none has in fact been offered). That is wrong in principle. Amendment application should be supported by a properly formulated set of amendments.

42.  In the premises, I am driven to dismissing this application. The dismissal should not be taken as a bar to the Defendants to bring another amendment application with a properly formulated abatement plea. They are of course free to bring new action to advance the new cause of action.

Disposition

43.  The application is dismissed with costs to the Plaintiff, to be taxed if not agreed.