|
HCCW000328/1990
-------------------
HEADNOTE
-------------------
Motion to strike out winding up petition on the grounds that the debt is disputed on substantial grounds.
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
COMPANIES (WINDING UP) NO. CWU 328 OF 1990
----------------
|
IN THE MATTER of THE COMPANIES ORDINANCE (Cap.32)
and
IN THE MATTER of RIGHTFAIRS DEVELOPMENT LIMITED
|
-----------------
BETWEEN
|
PYSOGEA (a joint venture of PAUL Y. CONSTRUCTION. CO. LTD. and SOGEA |
Petitioner |
|
AND
|
|
|
RIGHTFAIRS DEVELOPMENT LIMITED
|
Respondent |
-----------------
Coram: Hon. Jones, J. in court.
Date of hearing: 23 January 1991
Date of delivery of judgment: 23 January 1991
------------------
JUDGMENT
------------------
1. This is a motion by Rightfairs Development Limited which trades under the name of Funtex Construction & Engineering Co. (the company) to strike out the petition of Pysogea, (a joint venture of Paul Y. Construction Co. Ltd. and Sogea) (the petitioner), on the grounds that the debt claimed in the petition is bona fide disputed on substantial grounds.
2. The petition was presented on the 6th November 1990, and claims payment from the company of the sum of $107,582.00 that was paid by the petitioner to the employees of the company for arrears of wages under section 43D of the Employment Ordinance. The petitioner made a statutory demand for the amount claimed under section 178(1) (a) of the Companies Ordinance on the 9th October 1990 which was not complied with.
3. In support of the motion there is an affirmation of Mr Fan Kwong Yuen, the company's Managing Director, who states that on the 29th November 1988, the petitioner, who was the main contractor of a building site at Tate's Cairn Tunnel Approaches and Prince Edward Road interchange, entered into a contract ("the sub-contract") with the company whereby the company, a sub-contractor, agreed to carry out work for the construction of an elevated highway viaduct. He goes on to say that the petitioner wrongfully terminated the contract in May 1990 and excluded the company from the site, and that the petitioner had made no payments since the 30th April 1990
4. Proceedings were instituted by the petitioner in the High Court on the 29th May 1990 for damages and other relief for breaches of the sub-contract. The plaintiff has claimed, by way of damages, a sum of $2,911,000.00. A defence and counterclaim have been filed by the company alleging wrongful termination of the sub-contract. After the termination of the sub-contract, the employees of the company applied to the Labour Tribunal for arrears of wages, redundancy payments and holiday pay under the provisions of the Employment Ordinance. The company admitted liability in those proceedings on the 24th August 1990 and was ordered to pay the sum of $236,443.00. Of this sum, the company paid $122,422.40 in respect of redundancy and holiday payments on the 17th September 1990.
5. On the 10th September 1990, the petitioner had paid to the company's former employees the sum of $107, 582.00 by way of arrears of wages, which is the subject matter of the present petition.
.
6. By the counterclaim in the High Court action, the company contends that after taking into account the value of work carried out and payment's made by the petitioner, the petitioner owes the company $1,797,847.05. The company also claims the sum of $122,422.40 paid for the redundancy and holiday payments to its employees.
7. Mrs Kaplan, counsel for the company, has submitted that there is an issue to be tried with regard to this payment upon the pleadings by way of equitable set off. In support of her submission, she cited two authorities Hanak v. Green (1958)2 Q.B.9 and British Anzani (Felixstowe) Ltd. v. International Marine Management (UK) Ltd. [1980] 1 Q.B.137. Reference is made to the first case by Forbes, J. at pages 154 and 155 of British Anzani which reads :-
|
"This at once raises, in an acute form, the question I posed earlier and in general terms, does the requirement that the equity must impeach the title for the legal demand mean necessarily that the tenant's cross-claim must at least arise under the lease itself or directly from the relationship of landlord and tenant, or is it sufficient that it should arise out of some transaction closely connected with the lease, and if so how closely. The passage I quoted from the judgment of Parker J. in The Teno [1977] 2 Lloyd's Rep. 289, 297 assumes that the claim and cross-claim arise out of the same contract, but that is no doubt because on the facts before him they did so and this question did not arise for consideration. It is clear that in Bankes v. Jarvis [1903] 1 K.B. 549 the claim and cross-claim arose under different contracts. In Hanak v. Green [1958] 2 Q.B.9, 24, Morris L.J. referring to Bankes v. Jarvis averred that there was a close connection between the dealings and transactions which gave rise to the respective claims. In the Federal Commerce case [1978] 1 Q.B.927, 974-975, Lord Denning M.R. said: 'it is only cross-claims that arise out of the same transaction or are closely connected with it.' In Henriksens Rederi A.S. v. T.H.Z. Rolimpex (The Brede) [1974] Q.B.233, 248 he said much the same thing: 'It is available whenever the cross-claim arises out of the same transaction as the claim; or out of a transaction that is closely related to the claim.' In view of these passages and in particular having regard to the facts in Bankes v. Jarvis [1903] 1 K.B.549 it does not seem possible to conclude that it is in all cases necessary that claim and cross-claim must arise out of the same contract. Where as in this case they do not, it still therefore remains for consideration whether in any particular case the two matters are so closely connected that the principles affecting equitable set off can be said to apply. It is very necessary when seeking to reach a conclusion on this question in a case such as this to drive from one's mind the insidious prompting of generations of common lawyers that there is something special about rent. As I have already indicated I can find no trace of such a principle in equity and there is no reason why there should have been or should be now.
In this difficulty as with others concerned with set off, the best guide is, I think, to be found in Hanak v. Green [1958] 2 Q.B.9. In explaining and approving Bankes v. Jarvis, Morris L.J. had this to say, at p.24:
|
|
|
'The plaintiff, suing as agent or trustee for her son, claimed £50 from the defendant. The defendant had a perfectly good claim for £51 damages against the plaintiff's son. It was held that the defendant could set up as a defence to the claim against him that the plaintiff's son (the cestui que trust of the plaintiff) was indebted to the defendant in a sum for unliquidated damages exceeding the amount of the claim.
The conclusion seems to me to be clearly correct and obviously fair. It would have been manifestly unjust if the defendant had had to pay £50 to the plaintiff (who was an agent or trustee for her son) at a time when the defendant had an unquestioned claim for £51 against the plaintiff's son, who had left the country. There was a close relationship between the dealings and transactions which gave rise to the respective claims. If the case had been brought before the Judicature Acts it would appear that the defendant would have had strong equitable grounds for asking a Court of Chancery to restrain the plaintiff from proceeding with her case. But since the Judicature Acts the position is that matters of equity on which such injunctions might formerly have been obtained may now be relied on by way of defence.'
|
|
In other words, in considering questions of this kind it is what is obviously fair or manifestly unjust that will determine the solution. This is because today, while it is necessary to look back before the Judicature Act to discover the broad principles upon which equity would grant relief, it may not be helpful to seek to find out from the cases what a court of equity would have done in a similar case. The principle may be derived from the older cases. The application of that principle should be reached by a consideration of what today would be regarded as fair or just. This is but a reflection of the passage I have already quoted form the judgment of Lord Denning M.R. in the Federal Commerce case (1978) Q.B.927, 974-975." |
8. Mrs Kaplan contended that the payments made under the Employment Ordinance arise out of both claims in the High Court Action or in the alternative, that it is closely connected with the claim so that it would be manifestly unjust not to allow the set off.
9. Mr Yu, counsel for the petitioner, in reply submitted that there is no dispute that the debt is due and that there is no right of set off. He referred to the relevant sections in the Employment Ordinance which are as follows :-
|
"43C. (1) Subject to this Part, if any wages become due to an employee who is employed by a sub-contractor on any work which the sub-contractor has contracted to perform, and such wages are not paid within the period specified in section 23, 24 or 25, as the case may be, such wages shall be payable to the employee-
|
|
(a) |
where the sub-contractor has contracted with the principal contractor, by the principal contractor;
|
|
43D. (1) Where the wages of an employee who is employed by a sub-contractor are not paid by his employer within the period specified in section 23, 24 or 25, as the case may be, the employee shall serve on the principal contractor, within 60 days (or such other aditional period not exceeding 90 days as the Commissioner may permit) after the date on which the wages become due, a notice in writing stating the-
|
|
(a) |
name and address of the employee;
|
|
(b) |
name and address of his employer;
|
|
(c) |
address of the place of employment of the employee;
|
|
(d) |
particulars of the work in respect of which the wages are due; and
|
|
(e) |
amount of wages due and the period to which they relate.
|
|
43F. (1) If a principal contractor or superior sub-contractor pays to an employee any wages under section 43C, the wages so paid shall be a debt due by the employer of that employee to the principal contractor or superior sub-contractor, as the case may be." |
10. Mr Yu also drew my attention to a passage from Chapter 14 on page 309 of The Law of Restitution, 3rd edn. which reads : -
|
"In general, anybody who has under compulsion of law made a payment whereby he has discharged the primary liability of another is entitled to be reimbursed by that other. In all the cases discussed in this chapter, that other was liable to pay a debt or other liquidated sum. Consequently the Civil Liability (Contribution) Act 1978 will have no application and the common law will still govern.
The classic statement of the common law principle is to be found in a passage from the first edition of Leake on Contracts, which was quoted by Cockburn C.J. in Moule v. Garrett in 1872:
|
|
|
'Where the plaintiff has been compelled by law to pay, or being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in the amount.'
|
|
.........
|
|
To succeed in his claim for recoupment, the plaintiff must satisfy certain conditions. He must show (1) that he has been compelled, or was compellable, by law to make the payment; (2) that he did not officiously expose himself to the liability to make the payment; and (3) that his payment discharged a liability of the defendant." |
11. Mr Yu concluded with another citation from British Anzani at p.152 where Forbes J. has this to say :-
"While I am satisfied that it is proper in principle to allow that a cross-claim could be effective as an equitable set off against a claim for rent, it by no means follows that such a defence is available in all circumstances. The important qualification is that the equity must impeach the title to the legal demand, or in other words go to the very foundation of the landlord's claim. This seems to me to involve consideration of the proposition that the tenant's cross-claim must at least arise under the lease itself, or directly from the relationship of landlord and tenant created by the lease."
12. Mrs Kaplan responded by saying that the petitioner had placed itself in a position whereby it was required to make the payment of wages to the company's employees.
13. In my judgment, the sub-contract between the petitioner and the company is a separate transaction from the liability incurred to the company's employees under the Employment Ordinance so that the first limb of Mrs Kaplan's argument must fail.
14. With regard to the second limb that the payment was closely connected with the claim which would result in a manifest injustice if no right of set-off is allowed, it is significant that the intention of the legislation under the Employment Ordinance is to provided for the protection of the wages of employees. If it had not been for the legislation, the petitioner would have been under no liability to pay the company's employees. Indeed, as was submitted by Mr Yu, no fault can be attached to the petitioner for the company's failure to fulfil its obligations. The demand for payment by the petitioner arose under the Employment Ordinance so that I am unable to accept the second limb of Mrs Kaplan's submission that it was closely connected with the building contract to enable the company to put forward a claim for set-off. The issue is quite independent from the building contract and does not go to the root of the petitioner's claim. As a result, the motion will be dismissed with costs.
|
(B.L. Jones) |
|
Judge of the High Court |
Representation:
Mr Benjamin Yu (Masons) for Petitioner
Mrs Barbara Kaplan (Deacons) for Company
Mr J.W. Millican for official Receiver
|