XCHRX TRIFAIRCO ENGINEERING CO. LTD. v. YIU WING CONSTRUCTION CO. LTD.

HCA3686/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3686 OF 2001

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J U D G M E N T

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1. This is an appeal against an order by Master Cannon allowing the defendant conditional leave to defend, on payment into court of $1,000,000. The plaintiff cross-appeals. In this appeal by way of rehearing the plaintiff is seeking summary judgment and the defendant unconditional leave to defend.

2. The plaintiff is mainly engaged in the retail selling and rental of gondolas, which are suspended platforms used on construction sites to enable workers to work on the outsides of buildings. The defendant at the relevant time had construction sites at Tin Shui Wai.

3. By two agreements dated respectively 7 May 1998 and 25 November 1998, the plaintiff agreed to rent and provide gondolas and ancillary services to the defendant for its sites at Tin Shui Wai Area 31 phase 1 and Tin Shui Wai Area 102 Phase 3. Under the first agreement the plaintiff now claims $1,229,911.38 for gondola leasing charges due under six payment certificates submitted to the defendant since November 2000. Under the second agreement the plaintiff claims $1,087,930.00 for gondola leasing charges due under six payment certificates submitted to the defendant since April 2001. The plaintiff demanded payment directly on 17 July 2001, and through solicitors on 10 August 2001. The Writ was issued on 17 August 2001.

4. The defendant's defence and counterclaim as they appear from the affirmations of its director, Mr Cheung Wing Keung, Samuel, are based on allegations that the plaintiffs gondolas were defective. There does not seem to be any defence to the plaintiff's claim but the defendant says that the counterclaim far outweighs it, as follows :

1) In respect of the site at Area 102, the plaintiff's gondolas were out of service for a total of 23 days. Progress of the construction work was thereby hindered. The defendant, as the main contractor of the site which is owned by the Housing Authority is liable for liquidated damages for delay at the rate of $117,100 per block per day. The plaintiff is liable to indemnify the defendant for liquidated damages payable to the Housing Authority of 23 x $117,100 = $2,693,300.

2) On both sites the plaintiff's gondolas often broke down. The plaintiff supplied mechanics or electricians to maintain them, but in insufficient numbers. The defendant therefore had to supply its own mechanics or electricians to repair the gondolas for 32 months at Area 31 and for 16 months at Area 102 so as to mitigate their losses. The total salaries of mechanics or electricians at each site was $21,900 per month and the total cost was therefore $1,051,200.

5. It appears from the evidence of the plaintiff's director, Mr Leung Wang Chiu Stanley that there were six buildings under construction at Areas 31and 4 at Area 102. There were at any one time over 20 gondolas at each building. He concedes that the gondolas needed regular maintenance because of weather exposure and wear and tear, though sometimes damage to the gondolas was caused by the workers, e.g. by using iron wire to rope the safety button. The plaintiff issued a warning about this to the defendant on 5 May 2000 in respect of Area 102.

6. The first agreement provides for full time technicians provided by the plaintiff to be on site for daily maintenance and supervision. It also provides that 24 hours' written notice be given for repair of any gondola break-down and that the repair time is not to exceed two days. The second agreement provides for the lessee to keep the equipment in proper working order at his own expense and to pay the cost of replacement or repairs required due to fire, theft, accidents, loss, improper handling or otherwise during the rental period. At the same time it also provides for 24 hours notice for repair of any broken-down gondola, and for its repair by the lessor in two days. It also specifically provides that "no repairs can be carried out by the lessee for the damages of the equipment".

7. The plaintiff concedes that at Area 102 there were 23 days during which gondolas were out of service. The defendant gave written notice of this on 10 May 2000. The plaintiff has produced a subcontractor's interim payment certificate showing a deduction of rental of $3,303.03 in respect of these 23 days of non-use but also says that the gondolas concerned were repaired on 11 May 2000 and has produced a copy of its own message to the defendant to that effect.

8. The plaintiff has also produced a bundle of correspondence concerning written complaints about unserviceable gondolas at Area 102, as follows :

1) A complaint dated 30 December 1999, answered on 15 January 2000 to the effect that the plaintiff had appointed a technician to work on the site for daily maintenance work;

2) A complaint by a subcontractor dated 6 July 2000 that gondolas had broken down because of "fuss box tricked" (fuse box tripped), answered by the plaintiff on 8 July to the effect that a technician had been sent to check them and warning that the contractors should not use their tools in such a way as to trip the fuses;

3) A complaint by a subcontractor dated 7 September 2000 complaining of cessation of electricity supply to the gondolas in August 2000, answered by the plaintiff on 19 September to the effect that the problem had been caused by short circuiting due to weather but that an extra technician had been sent out with effect from 4 September;

4) A complaint dated 2 March 2001 that four gondolas had been out of service on 1 March, and all gondolas on 2 March answered by the plaintiff on 3 March to the effect that the four gondolas had been repaired, but that the cessation on 2 March was due to a failure of the main electricity supply which is not the plaintiff's responsibility; and

5) A general complaint dated 11 April 2001about unserviceability of gondolas (which included specific complaints about cessation of operation of four gondolas on the same day) and reserving the right to claim against the plaintiff for all liabilities, answered by the plaintiff on 17 April to the effect that two technicians had been sent out, and that gondola users should be told to use them properly.

9. This is the only correspondence before the court. While this correspondence seems to indicate that the plaintiff had no technicians on site until the defendant complained, this is only in respect of Area 102. There is no contemporaneous correspondence in support of the defendant's contention that it employed its own mechanics for 32 months at Area 31 and for 16 months at Area 102 to keep the gondolas operational.

10. Further while the defendant contends that it should be indemnified against paying liquidated damages for delay to the employer, it appears that as yet no claim has been made by the employer. It is also difficult to see that 23 gondola-days of "down time", would necessarily have caused 23 days' delay for which the defendant would be liable in liquidated damages. The correspondence shows one gondola at Block 10 out of service for 15 days, and one at the same block for nine days, as well as one at Block 12 for seven days. Even if two out of 20 were out of service on any given day at Block 10, that would not necessarily put back the completion of Block 10 by one day. The same goes for Block 12. Further it is not clear whether all the "down-time" was the fault of the plaintiff's lack of maintenance rather than electricity supply failure (which is, under the agreement, the defendant's responsibility) or wrong use by the defendant's workers.

11. Order 14, Rule 3 places the threshold onus on the defendant to show that there is a triable issue. The Court will test the credibility of an affidavit asserting a triable issue against the conduct of the defendant and contemporary documents. See Murjani v. Bank of India [1990] 1 HKLR 586. In Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 Godfrey JA said :

"...I would sound a note of caution about Murjani which has come to be cited in almost every case under O 14 or O 86 to justify the plaintiff in asking the court to embark on a mini trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question : 'Is what the defendant says credible?'. If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed, it is whether those assertions are believable."

12. Godfrey JA on the same theme in the leading case of Man Earn Limited v. Wing Ting Fong [1996] 1 HKC 225 said :

" Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine', Order 14 ought not to be applied." : see Codd v. Delap (1905) 92 LT 510 per Lord Lindley at 511.

13. However, this does not mean that the court must disregard the background. To the extent that it can look at the defendant's own conduct and the contemporaneous documents, without embarking on a mini-trial on affidavit evidence, Murjani is still good law. Or, as Bokhary JA put it in Re Safe Rich Industries Limited, Civil Appeal No.81 of 1994, unreported, 3 November 1994 :

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

14. Here there is simply nothing but the bare assertion to show that the defendant put its own mechanics or electricians to work on keeping the gondolas operational. Given that it is said that salaries were paid to these mechanics or electricians one would have thought that the plaintiffs could produce documentary evidence of the payments. Given that the agreements provided that the plaintiff should put technicians on site to maintain the gondolas, one would have expected, if the defendant had to do it, to see correspondence to that effect especially over the periods claimed. In fact there is none.

15. With regard to the claim for indemnity against liquidated damages, the defendant is on slightly less unsure ground, but only slightly. There are some contemporaneous documents showing that complaints were made. The first of these complaints dated 30 November 1999, a year after the agreement was made for leasing at Block 102 says that "there should be a technician on site" and is answered by "We have appointed a Site technician" which shows that the plaintiff did not have any technician on site before that. It does seem that the defendant will be able to make out some sort of case that there were breakdowns which took time to repair. The major problem is, of course, that there is no evidence showing any loss to the defendant caused by the breakdowns. There is no claim by the employer for liquidated damages and no evidence before me to show how many days, if any, were actually lost because of the plaintiff's fault.

16. The part of the counterclaim which relates to the use of the plaintiff's own technicians is something which simply was not recorded and the inference is that it has been invented for the purpose of the defence. In the circumstances I do not see that the defendant's assertion that it put its own men to work on the gondolas is credible. As to the claim for indemnity for liquidated damages for delay there is insufficient evidence to support the delay complained of or to show what delay if any can be laid at the plaintiff's door although there does seem to have been some fault on the plaintiff's part.

17. Unfortunately this case is like so many others where a defendant fails to pay for goods or services and then, only when sued, tries to set up a defence or counterclaim based on defects in the goods or services provided, but cannot provide any evidence to show contemporaneous complaint of such defects. The inference must be that the defence is not bona fide. Conditional leave to defend may be granted where there is good ground in the evidence for believing that the defence set up is a sham defence or the master is prepared very nearly to give judgment for the plaintiff. See Hong Kong Civil Procedure 2002 at 14/4/16. No doubt that is why the Master gave conditional leave in this case. I am of the view on rehearing that this is the proper course.

18. The defendant's appeal and the plaintiff's cross-appeal are therefore both dismissed. The Master's order will stand. Costs of the appeal will be in the cause.