Y.H. CONSTRUCTION CO. LTD. v. KINGSCORD INVESTMENT LTD.

DCCJ16556/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 16556 OF 2001

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Judgment

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1. This is the plaintiff's application for summary judgment under Order 14 of the Rules of the District Court.

2. The plaintiff is a building contractor. The defendant is a real estate developer. It was the agent for the letting, collection of rent and management of a property in Kowloon owned by Grand Inn Investments Ltd. and leased to Castle Peak Road Cambridge Nursing Home Ltd. ("Cambridge") for a term of three years from 15 March 1999. A special condition of the lease provided that the landlord would open up the existing floor slab and construct a new staircase from the ground to the first floor of the property. In March 1999 the parties entered into a contract for the plaintiff to build for the defendant that staircase at a fixed price of $240,000.

3. The plaintiff pleads that from March to September 1999 it performed a substantial part of the works under the contract. In fact no actual work other than design and preparatory work was ever carried out. It pleads that the defendant terminated the contract unilaterally at a meeting on 18 September 1999. The plaintiff billed the defendant for $98,000 and now says that the defendant told it that this sum would be paid by its tenant but it was not paid. The plaintiff accordingly claims for this sum. A further pleaded claim for damages for loss of profit is not pursued.

4. The defendant pleads that the contract provided for the completion of the works by 10 August 1999; there was a penalty clause which provided for a penalty of $3,000 per day for delay. The works were not completed on time. This amounted to wrongful repudiation of the contract. The defendant exercised its right to terminate and on 18 September 1998 accepted the repudiation. The defendant says that there was an implied term for lump sum payment on completion of the works; there was no completion; it denies liability to pay any sum under the contract and further counterclaims for $22,745.00 being a lost submission fee paid by it to the Government, and for fixed penalty at $3,000 per day from 11 August to 17 September 1999 amounting to $114,000.000; this gives a total counterclaim figure of $136.745.00.

5. The plaintiff in its defence to counterclaim pleads that the work was suspended at the defendant's request in mid-July because Cambridge was negotiating for the sale of its business concerns at the property to an interested buyer. However, in the meantime the plaintiff carried on with preparatory works. At the meeting on 18 September 1999 Mr. Ringo Choy of the defendant asked the plaintiff to submit an invoice for the work done to date. It admits liability for the submission fee but denies liability for penalties.

6. Evidence for the plaintiff comes from its director Mr. Jim Yin Kwan, Jackin. He says that in about mid July 1999 Mr. Ringo Choy of the defendant told him to suspend the construction of the staircase on the ground that Cambridge might not require it. He told Mr. Choy that the plaintiff would in the meantime carry on with application for approval of the design from the Building Department and with preparatory work, because if the application was withdrawn, but Cambridge then decided that it required the staircase to be built, there would be substantial delay. Then at a meeting on 18 September 1999 Mr. Choy confirmed that Cambridge did not require the staircase and that the plaintiff would terminate the contract. After the meeting Mr. Jim asked Mr. Choy to submit an invoice for work done to date. On 22 September 1999 the plaintiff wrote to the defendant advising that its fees would be $98,000.00, being $60,000.00 for appointment of Authorised Person and design fee, plus $38,000.00 for the plaintiff's own work including co-ordination, liaison and documentation work. Mr. Choy later told Mr. Jim to invoice Cambridge who would settle the invoice direct and the plaintiff sent its invoice to Cambridge on 7 December 1999. It was never paid. In about July 2000 Mr. Jim tried to follow up the matter with the defendant but found that Ringo Choy had left it. Since there was no contract between the plaintiff and Cambridge the plaintiff claimed payment from the defendant and when this was not forthcoming, issued proceedings on 29 September 2001.

7. There is an affirmation by Mr. Ringo Choy Chung Kuen, who was employed as Vice President in the defendant's group of companies from July 1997 to July 2000, which supports what Mr. Jim says. He says that in mid July 1999 Cambridge, in the person of its Mrs. Irene Luk, asked that construction of the staircase be suspended because it was negotiating the sale of its business concerns at the premises to an interested buyer. He further says that at the time when he left the defendant he thought that the plaintiff's bill had been settled.

8. On the defendant's side evidence comes from Mr. Poon Chi Hung, its property manager, who had no personal knowledge of what happened between the parties; his knowledge comes at second hand from the defendant's director, Mr. Yew and from Mrs. Irene Luk of Cambridge. He says that the contract for the staircase was to be completed by 10 August 1999 and that there was provision for a penalty of $3,000.00 per day for delay. There is indeed a handwritten addition to the typed contract, to that effect. He also says that the architect had not been able to get the construction plans for the staircase approved, and has produced correspondence in support of that showing disapprovals as late as 9 September 1999. He also says that he could not locate the plaintiff's letter of 22 September 1999 on file. It appeared to him that the parties had abandoned the contract. He was not present at the meeting in August. Otherwise his affirmation contains the usual combination of hearsay and legal argument that the courts have come to expect, but no real first-hand evidence.

9. There is also an affirmation by Mrs. Luk. She says that Cambridge was indeed negotiating to sell its business at the premises, but she first told Mr. Choy of this in early September. He asked her to attend the meeting on 18 September. At that meeting the architect reported that it was impossible to have the plans approved unless either the premises were not used as a residential care home, which was Cambridge's business, or substantial remedial works were done, and that if the plans were not approved, the staircase could never be built. She decided that Cambridge could not afford the substantial remedial works; she told the meeting of this, and of her negotiations to sell the business. She said that the buyer did not know anything about a staircase to be built and that if the sale went ahead there would be no need for it. Only then did she say that she had no objection to the construction of the staircase being delayed pending the outcome of the negotiations for sale of the business. Mr. Choy never said at that meeting that the defendant would terminate the contract.

10. In fact it appears that on 20 September 1999 Mrs. Luk wrote to Mr. Choy asking for transfer of Cambridge's lease to one Quality Healthcare Asia Ltd. This was exhibited by Mr. Poon. It suggests that the sale of the business was completed, although Mrs. Luk does not say as much in her affirmation.

Order 14 - the Principles

11. Order 14 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.

12. However, Order 14 is not appropriate where there is a real dispute of fact or the factual matrix is unclear. Per Litton JA in Sin Hua Bank Ltd. v Sung Foon Kee Ltd. [1993] 1 HKC 65 at 67I:

Where there are real disputes of fact, or where the factual matrix is unclear, it would be a strong remedy for a court to give summary judgment to the plaintiff. By giving unconditional leave to defend, the court is, in effect, postponing judgment for the plaintiff if the plaintiff turns out to be right. Any delay can be compensated for in interest.

In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 Godfrey J.A. 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."

In Manciple Ltd. v Char On Man [1995] 3 HKC 459, Mortimer JA said at page 466D:

Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process. It enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay. When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he: is to be allowed his day in court. To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice. On the other hand, if he has no defence and he obtains leave to defend, equally, there is injustice to the plaintiff.

There is a difficulty because the court cannot resolve issues of fact on affidavits. However, there are some cases in which the defendant's own case, although apparently it raises issues which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham.

Godfrey J.A. put the matter in a nutshell in Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225:

"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, 3rd 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. As Yeung J put it more recently in Ng Siu Kei v Chong Mee Mee [1999] 1 HKC 693, the defence must not be "inherently impossible". I would expand that to say that if the defence is inherently impossible, when looked at in the context of so much of the background as either undisputed or beyond reasonable dispute then Order 14 must be granted. If it is not, then the defendant must have leave to defend.

15. I would for my own part add that while it is inappropriate to hold a mini-trial on affidavit evidence, it is equally inappropriate for defendants to put forward long and convoluted legal arguments in the hope of finding some way to make a sham defence look like a possible one. This does not apply, of course, if the application is for the court to rule on a point of law under Order 14A. But as Rogers JA said in Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 at 111:

"The old adage that if you have to sit down, it is not a case for Order 14 is equally applicable today as it was when it was first coined."

The Arguments

16. The defendant relies primarily on legal argument though it is argued that the dispute of fact as to what was said at the meeting on 18 August 1999 in any event gives rise to a triable issue. It says that the contract required completion of the staircase on or before 10 August 1999 and in compliance with Government rules. The plaintiff was not able to get the Buildings Department's consent for commencement of the works. The plaintiff failed to complete on time and was in breach of the contract which was an entire contract. Complete performance was a condition precedent to the plaintiff's entitlement to payment. Therefore the plaintiff can recover nothing. In the alternative, if the plaintiff can recover it will only be on the quantum meruit basis, and the sum claimed is excessive. There is also a triable issue as to whether the contract was repudiated or discharged.

17. The plaintiff relies on the factual assertion that the defendant gave instructions through Mr. Choy to suspend the works, thereby waiving the requirement of completion by the fixed date. It argues that the time clause which provides for a penalty of $3,000 per day for late completion is a penalty and unenforceable. It says that whether the contract was repudiated or discharged, in any event the plaintiff is entitled to charge for services performed prior to rescission. It says that it is entitled to sue on quantum meruit and the sum sued for is not excessive.

Application of the Principles

18. For my own part I do not see that there is any great need for legal analysis of the contract. If the contract was an entire contract, and the plaintiff was in breach it by not completing on time, and so was not entitled payment for work done the defendant could still have agreed to pay. There is inevitably an issue of fact to be decided, i.e. whether or not Mr. Ringo Choy agreed to pay the plaintiff for work done to date. No doubt it would be said that there was no consideration for such an agreement but presumably consideration could be found in the settlement of any dispute which might have arisen. I think those factual issues have to be settled first, before a decision can be made on the law. It is true that the plaintiff now has Mr. Choy, who was then working for the defendant, on its side; but that does not necessarily mean that the defendant's denial is incredible. It is certainly not inherently impossible especially given that the plaintiff had not even managed to get permission to start building the staircase, let alone complete it. There is nothing in the documents coming from the defendant to suggest that there was any agreement to pay for work done. It is indeed difficult to understand why, in the circumstances, Mr. Choy would have agreed to pay anything.

19. It seems to me that the defendant has put up a case which is not inherently impossible. It cannot be regarded as "frivolous or practically moonshine". Further, the application was taken out after the filing and service of the defence and counterclaim and after the defendant had filed and served affirmations confirming the matters pleaded therein. The plaintiff knew that the defendant relied on contentions which would entitle it to unconditional leave to defend. The appropriate order is one of dismissal.

20. The plaintiff's summons for summary judgment is dismissed with costs to the defendant (nisi) to be taxed if not agreed with certificate for counsel.