XCHRX WENDEN ENGINEERING SERVICE CO. LTD. v. TECHNIC CONSTRUCTION CO. LTD.

HCCT120/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.120 OF 1997

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D E C I S I O N

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1. There are two summonses before the court. Firstly, the 1st defendant applies under Order 26, rule 3(2) for the withdrawal of interrogatories requested by the plaintiff on 3 January 2001. Secondly, the plaintiff applies under Order 29, rule 2 for interim preservation of funds by a payment into count of money presently being held by the 1st defendant in a "reserved money account".

2. The plaintiff is an air-conditioning sub-contractor. The 1st defendant is the main contractor. The Architectural Services Department of the government is the employer. The 1st defendant claims that the plaintiff is not it's sub-contractor but that the 2nd defendant is an extra link in the contractual chain. The 1st defendant says that it's sub-contract is with the 2nd defendant and that the plaintiff is the 2nd defendant's sub-contractor. The plaintiff disputes this. The plaintiff says that it's contract is with the 1st defendant.

3. In any event, it is agreed that this issue is a matter to be resolved at trial.

Interrogatories

4. The plaintiff served interrogatories under two paragraphs. The information sought under paragraph 2 has already been supplied. Paragraph 1 reads :

"1. The 1st Defendant is requested to answer in a table form, a sample of which is attached herewith, the following question, namely :-

what is the total amount of money which the 1st Defendant has received from the Government up to today with respect to works performed by the Plaintiff under ASD Contract No. TCD019 (with a detailed breakdown thereof as set out in the sample)?"

The table contains 12 columns. Only Columns 11 and 12 are relevant to this request. Column 11 seeks "Accumulated amount released by Technic (1st defendant) to Tang (2nd defendant) in relation to ACR (air-conditioning and refrigeration) work.

Column 12 seeks "Accumulated amount deposited/withheld in reserve account" (also in relation to ACR work).

The 1st defendant seeks the withdrawal of these interrogatories on the basis that they are (a) premature and (b) Column 11 cannot be answered and Column 12 has already been answered.

5. Normally, interrogatories follow discovery and witness statements. In this case, the original list in the discovery process was in November 1999. Ideally, discovery takes place as a single event. Supplemental lists are normally confined to new documents or documents that have been overlooked. In this case so far, there have been three supplemental lists, all of which have been provided between the request for interrogatories and this hearing. Mr Graham, for the plaintiff, asks the question, how long must we wait before discovery has taken place? Discovery sometimes continues into the trial itself.

6. As for waiting for the witness statements, the position in this case is that it is likely that the 1st defendant will be in the same position at the time of exchanging the witness statements as he is now. In other words, after the exchange of witness statements the 1st defendant will probably still be saying about Column 11 "we don't know" and Column 12 "we have already told you".

7. In all these circumstances, it seems to me that unusual circumstances prevail here which justify the unusual course being taken of allowing this interrogatory. The rules must be applied but they are not inflexible. Each case is different. The authorities which have been cited by Mr Robert Tang, SC for the 1st defendant are good authorities for the usual principles. They are English authorities which are not dealing with construction cases. From time to time, construction cases in Hong Kong will give rise to unusual circumstances which warrant a departure from the usual rules, in the court's discretion.

8. In the circumstances I am satisfied that, in this case, they are not premature and that they are necessary for disposing fairly of the cause or matter or for saving costs (particularly the latter).

9. As for Column 11, the 1st defendant says "we don't know the answer". They are asked how much money have they passed on to the 2nd defendant in relation to ACR works done by the plaintiff. They say that the money they have passed on to the 2nd defendant is in respect of all the various sub-contractors' works and that they cannot break it down further to reflect a sum due to the plaintiff. This may be the present state of affairs, however, I am satisfied that it would not be impossible to discern the answer and provide the information.

10. I refuse the summons to withdraw the interrogatories with costs to the plaintiff.

Interim preservation of money

11. The 1st and 2nd defendant are withholding money which has been paid by ASD in a "reserve account" pending a final account which may result in money being paid back to the ASD because of overpayments. Mr Graham submits, and the documents support him, that the plaintiff actually did the ACR work and the payments made by the ASD are in relation to the ACR work. He further submits, and the documents support him, that if any overpayments have been made they were in respect of the other sub-contractors, not the plaintiff. Thus, if this account is used to repay ASD, the defendants will, in effect, be using the plaintiff's money to account for overpayments made to other sub-contractors.

12. Mr Robert Tang, SC for the 1st defendant, submits that the court has no jurisdiction to make the order sought under Order 29, rule 2. I have come to the conclusion, not without some difficulty, that an order for interim preservation should not be made in this case. I acknowledge that this will leave the plaintiff in a vulnerable position. It seems to me that this is unfortunately unavoidable for the following reasons.

Firstly, There is a dispute as to the contractual chain. The 1st defendant says it has no contract with the plaintiff. The plaintiff should only look to the 2nd defendant for payment. This dispute is an issue for trial. If the 1st defendant is ultimately shown to be correct, a preservation order under Order 29, rule 2 will have, effectively, frozen money in the 1st defendant's possession pending the resolution of contractual disputes between the plaintiff and the 2nd defendant.

Secondly, the 1st defendant has contracted with ASD. ASD has overpaid its contractor. The 1st defendant is contractually liable to repay ASD. ASD does not need to say which sub-contractor has been overpaid and which has not. It has overpaid the 1st defendant, not the sub-contractors. The money in reserve is to cater for the very event of overpayment generally.

Thirdly, the plaintiff is naturally concerned that if an order is not made, the asset (i.e. the reserve money) will be dissipated. It is understandable that in the eyes of the plaintiff it would amount to a "dissipation of assets" whereas, in fact, it would be no more than the 1st defendant complying with its contractual obligation to the ASD.

Fourthly, Order 29, rule 2 states :

" 2.- (1) On the application of any party to a cause or matter the Court may make an order for the detention, custody or preservation of any property which is the subject-matter of the cause or matter, or as to which any question may arise therein, or for the inspection of any such property in the possession of a party to the cause or matter. (emphasis added)

(2) For the purpose of enabling any order under paragraph (1) to be carried out the Court may by the order authorize any person to enter upon any land or building in the possession of any party to the cause or matter.

(3) Where the right of any party to a specific fund is in dispute in a cause or matter, the Court may, on the application of a party to the cause or matter, order the fund to be paid into court or otherwise secured. (emphasis added)

(4) An order under this rule may be made on such terms, if any, as the Court thinks just."

13. In our case, the money in respect of which the preservation order is claimed is in a bank account. It is an active bank account with payments in and out. It is neither "property", as in 2(1) nor "a specific fund" as in 2(3). Indeed, Mr Graham concedes that this is not a proprietary claim but submits the summons falls within the words in rule 2(1) - "or as to which any question may arise therein". I cannot agree. The "question" which may arise is a question which relates to the property being preserved.

14. I find myself unable to make the order requested. I dismiss the summons with costs to the 1st defendant.