BOPER ENGINEERING LTD v. FORTRESS a division of A.S. WATSON GROUP (HK) LTD

HCCT12/2005

IN THE HIGH COURT OF THE

 HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.12 OF 2005

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D E C I S I O N

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1. In 1997 and 1998, the plaintiff (“Boper”) was a sub-contractor installing air conditioning units at a development where the defendant (“Fortress”) was the electrical sub-contractor.  The main contractor was Paul-Y ITC.

2. Between Boper and Fortress, it was a fixed price contract for $5,689,250.00.

3. By this action, the plaintiff applies by way of “Order 14” proceedings for summary judgment in the sum of $1,648,705.94 being the balance of monies due under the contract.  During the hearing, Mr Victor Dawes for Fortress correctly pointed out (and Mrs Dora Chan for Boper conceded) that Boper’s claim for retention money had been (probably inadvertently) duplicated and should be deducted from the claim.  Boper therefore now claims $1,364,243.44.

4. The sum claimed is the total of nine purchase orders.  Five are sums said to be insufficient payments under the fixed sum sum contract and four are said to be unpaid variation orders.

5. The breakdown is as follows :

         (1)      Shortfalls

Date of P.O.	Amount $	Amount paid $	Balance due $
18.2.98	270,000.00	200,000.00	70,000.00
23.3.98	270,000.00	220,000.00	50,000.00
6.8.98	1,150,000.00	600,000.00	550,000.00
3.9.98	700,000.00	400,000.00	300,000.00
1999	81,750.00	0	81,750.00
			_____________
			1,051,750.00
Less debit notes for materials			572,606.56
			_____________
			$479,143.44

         (2)      Unpaid variations

Date of P.O.	Amount $	Amount paid $	Balance due $
No date	85,000.00	―	85,000.00
4.11.98	600,000.00	500,000.00	100,000.00
No date	600,000.00	―	600,000.00
15.1.99	600,000.00	500,000.00	100,000.00
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			$885,000.00

6. It is to be noted, first of all, that all these sums relate to works done about seven years ago.  Boper have been pressing for payment throughout.  The above figures are contained in a letter to Fortress dated 21 May 2001 in which it was pointed out that the sums claimed, even then, related to works done three–four years earlier.

7. Before giving a short outline of the history of the matters, the principles applicable to Order 14 applications should be briefly stated.

THE LAW

8. Fortress must demonstrate it has a real or bona fide defence.  If the defence is a sham, or incredible or bound to fail, the plaintiff is entitled to summary judgment.  If, for example, new ‘defences’ emerge after a long passage of time, they should be considered with caution and can be dismissed if the commercial reality is that they have only come to light at the 11^th-hour in order to oppose the summary judgment application.

BACKGROUND

9. This was not a back-to-back contract with the main contractor.  Boper’s works were certified as practically complete in February 1998 and the outstanding sums requested from the outset.  The defects liability period ended in November 1999.  No defects list was ever sent to Boper after this date, despite requests to do so, so that Boper could attend to any defects for which it was liable.

10. Even though there was no ‘pay when paid’ clause in the contract between Boper and Fortress, Fortress nonetheless informed Boper, in June 2001, that payment had not been made because it was still waiting for payment from the main contractor.

11. In 2001, the main contractor claimed contra charges against Fortress but Fortress did not allege liability for these contra charges against Boper until 2004, three years later, when Boper finally commenced proceedings.  Even so, when Fortress did eventually file a defence, in May 2004, it consisted of a bare denial, with no counterclaim and no formal claim that the main contractor’s complaints were the responsibility of Boper.

DEFENCES

12. Fortress advance a general defence of defective works.  In addition, but only in relation to the claim for unpaid variation orders, they submit that the variation work, although done, was not carried out within the terms of the contract.  I will deal with the latter argument first.

         (a)     Variation orders

13. Clause 6 of Appendix III of the contract states :

“This is a lump sum contract.  No variation of works or price fluctuation or extension of time will be granted to the Sub-Contractor unless authorised by the Contractor in writing.”

14. Fortress’s argument is simply that the $885,000.00 worth of variations carried out by Boper were not “authorised by the Contractor in writing”. 

15. In my judgment, once the entire picture is considered, Fortress cannot, six years after the work was done, rely on the above clause as grounds for refusal to pay.  It had not referred to the clause as a reason for non-payment at the time.

16. There is no dispute that the work under the variation orders was carried out.  With regard to the two variations which Fortress paid $500,000.00 out of the $600,000.00 claimed, it is difficult to understand how they can deny liability for the balance of $100,000.00 simply on the basis that it had not been confirmed in writing.  If so, why did they pay anything?  It is clear that all variations were carried out on the same basis.  Invoices were sent, Fortress did not challenge them and the work was done and not disputed.  In May 2001, Boper remarked in correspondence (which was not replied to) as follows, “regarding all the variation orders, we have completed it long ago and your company has acknowledged (or ‘signed to accept’) it” (alternative translation in italics).  By their conduct Fortress, seven years later, must be deemed to have waived the requirement for formal written authorization.

         (b)     Defective works

17. The first suggestion that Boper’s work had been defective was in a letter dated 10 July 2001.  No particulars were given and none were forthcoming when requested.  In February 2004, Fortress could only say it was “still investigating the matter”.

18. If the matter were allowed to go to trial, Fortress would seek (according to a draft defence and counterclaim dated May 2004) to hold Boper responsible by way of a set-off for contra charges imposed by Paul-Y on them.  Coming so late, this defence is doomed.  Not only did Fortress spend six years or more either “investigating” it or, more likely, doing nothing about it, they also have failed to particularise satisfactorily or at all, how it is claimed that Boper is the particular sub-contractor liable for these contra charges made against Fortress.  In short, it is too little too late.  Further analysis of individual items is unnecessary.

19. Apart from Paul-Y’s contra charges Fortress, at trial, would claim to be compensated for the cost of work done by themselves, a company called “Goldwell” and a company called “Universal”.  Fortress originally claimed a total of $1,883,752.00 for these works.  No proper explanations have been provided for why Boper is responsible for the works and no adequate particulars have been given.  Moreover, upon further analysis by Fortress, the sums claimed have shrunk to a total of $157,770.00, about 8% of the original figure.

20. In my judgment, it is safe, proper and just to regard Fortress’s defences generally as unsustainable and lacking bona fides due to the passage of time and lack of particularization either now or hitherto.

21. I grant summary judgment to Boper in the sum of $1,364,243.44 plus interest at 1% over prime from 17 January 2001 together with costs to be taxed if not agreed.