HING WAI MACHINERY ENGINEER CO v. 中國冶金科工集團公司

HCA 2784/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2784 OF 2006

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D E C I S I O N

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1.  This is an appeal against an order of Registrar C Chan made on 24 July 2007 which in effect stayed the execution of an order of Master Roy Yu made on 22 June 2007. 

2.  The plaintiff obtained a regular default judgment on 6 January 2007 for $4,629,558.47 which was later amended to $3,787,839.89.  Master Yu on 26 June 2007 ordered that on condition that the defendant paying into court the said sum of $3,787,839.89 within 28 days (which expired on 24 July 2007), the amended judgment be set aside.  The defendant has filed a notice of appeal against Master Yu’s decision and the appeal will be heard on 21 September 2007. 

3.  The defendant has also obtained an order from Registrar Chan on 24 July staying the execution of the order of Master Yu as well as the amended judgment.  Hence, the plaintiff cannot enjoy the fruit of the regular default judgment as amended and the defendant does not have to make any payment into court pending the appeal to be heard on 21 September 2007.  The plaintiff now appeals against the Registrar’s order and seeks to remove the stay on the execution of both Master Yu’s order and the amended judgment. 

4.  The plaintiff was the defendant’s subcontractor in some construction works which were governed by a contract dated 25 May 2004.  It was a pay-as-built or an actual measurement contract.  Payment should be made on the basis of actual work done (see para. 37-010, Chitty on Contracts, Vol. II, 29th edn. andpara. 4-017, Keating on Construction Contracts, 8th edn.).  The plaintiff started working in the second half of 2004.  It submitted interim payment applications to the defendant from time to time.  The defendant paid the plaintiff certain sums in response to these applications but never paid the applications in full.  There were always deductions in addition to the 5 per cent contractual retention money.  The plaintiff would, however, include the unpaid sums in the next interim payment application.

5.  On 1 July 2006, the plaintiff submitted the 23rd and final payment application.  It was for a total sum of $4,829,558.47.  That included all sums not paid in the previous 22 payment applications.  There is no evidence that the defendant has responded to this application except by a payment of $200,000 on 5 October 2006, leaving a balance of $4,629,558.47. 

6.  The plaintiff’s solicitors served a demand letter dated 22 November 2006 on the defendant, referring to the 23rd application but demanded payment of $5,202,617.74 instead of $4,629,558.47 and without explaining the discrepancy.  The defendant’s then solicitors only replied on 15 December 2006 seeking an indulgence of 10 days to take instructions on the matter as the responsible officer was said to be on holiday. 

7.  The solicitors for the plaintiff did not wait.  They issued the writ on the next day and served it on the defendant direct.  The writ claimed $4,629,558.47 and not $5,202,617.74 as in the demand letter.  The defendant took no action and a regular default judgment was entered on 6 January 2007 for $4,629,558.47. 

8.  The defendant applied to set aside the judgment on 26 January 2007.  The application was supported by an affirmation of one Han Xudong, the defendant’s assistant general manager.  Mr Han said that the payment to the plaintiff depended on actual work done.  The defendant disputed the sum stated in the 23rd application and said that the plaintiff had overclaimed $3.9 million.  In addition, there were counterclaims of $209,000 for rectification of defective works as identified by the Architectural Services Department, which represented the government, the employer of the project, and contra charges of $922,000.

9.  Mr Han also produced a summary prepared by the defendant’s quality surveyor showing the work done by the defendant less the contra charges and contractual retention money.  The balance payable to the defendant as shown in the summary is $164,382.10.  Mr Han also produced a schedule of the alleged contra charges.  There is, however, nothing to show any contemporaneous complaint by the defendant to the plaintiff for any overclaim, defective works or contra charges.

10.  The plaintiff filed an affirmation by its proprietor, Mr Yung Wai Ching, to oppose the application to set aside.  He said all measurements of work done were accurate as they were made in the presence of the defendant’s foreman who witnessed the measurements.  Mr Yung also denied knowledge of the alleged basis for deducting payments for the previous 22 applications.

11.  Mr Han made a reply affirmation and alleged that the foreman had neither the knowledge nor the authority to commit the defendant to the plaintiff’s measurements.  He also argued that Yung was aware of the basis of the deductions for the previous 22 applications.  On last Monday, the defendant also produced a very detailed schedule said to have been prepared by its quality surveyor in support of its case that the plaintiff had overclaimed for work done.

12.  At the hearing for setting aside the default judgment, the plaintiff also applied to amend the judgment sum by reducing it to $3,787,839.89.  The reason given for the amendment was quite brief and with very few particulars.  In any case, the judgment was duly amended.

13.  Master Yu was obviously not impressed by the defendant’s arguments as he ordered a condition of payment into court of the whole sum in the amended judgment for setting it aside. 

14.  As I have mentioned above, Registrar Chan made an order on 24 July which had the effect of staying the execution of both Master Yu’s order and the amended judgment.

15.  Both parties have invited me to follow Star Play Development Limited v Bess Fashion Management Company Limited HCA4726/2001 dated 7 July 2002. 

16.  Mr Wong for the plaintiff submitted that the defendant’s schedule of work done is of no use as it was not prepared on the same basis of measurement as adopted in the plaintiff’s payment applications.  Hence, this schedule cannot be used to compare with the plaintiff’s applications for identifying the discrepancies.  Mr Dawes for the defendant, however, submitted that the schedule of work done was prepared by the defendant’s quality surveyor by measuring the work done as shown in the as-built drawings produced by the Architectural Services Department.  This is a matter that I cannot and should not resolve now.

17.  I am not supposed to go into the details of the merits of the appeal.  Just by way of a general observation, the lack of any contemporaneous document and the delay in responding to the plaintiff’s claim would make the defendant’s case look not too convincing.  However, I do not think I can brush aside the schedules of measurements done by the defendant’s quality surveyor.  It is also rare for construction works to be completed in a perfect manner.  Furthermore, the plaintiff has also not adequately explained the changes in the amount of its claim. 

18.  I think it looks unlikely that the defendant will be able to succeed entirely on the appeal against Master Yu’s order.  On the other hand, it would also be unlikely for the plaintiff to be able to maintain the condition of payment in for the whole sum in the amended judgment.

19.  I would therefore apply a broad-brush approach.  I would set aside the Registrar’s order.  Since, Master Yu’s order for payment in has expired and the amended judgment can be executed, I would stay the execution of the amended judgment pending the hearing of the appeal against Master Yu’s order on condition of the payment of a substantial portion of the amended judgment into court by the defendant. 

20.  In the course of the hearing, I proposed to take off $209,000 for the alleged defective work as identified by the Architectural Services Department and then take off 25 per cent of the balance for the purpose of payment-in by the defendant.  That would be around $2.68 million.  I must say that the 25% is just an arbitrary figure and not quoted on any basis.  Mr Dawes, however, suggested deductions of the $209,000 and $1 million for alleged contra charges and a further 15% of the balance for potential overclaim by the plaintiff.  That would produce a figure of about $2.1 million.  Mr Dawes proposed to pay this sum into court within 21 days from today as the defendant has cash flow inconvenience.  Mr Wong was unhappy about this approach and seemed to favour my 25% approach.  He also thought that 21 days was too long a period. 

21.  Since this exercise is to be done on a rough-and-ready basis, I think Mr Dawes’ approach is more preferable and $2.1 million is a substantial sum.  In the light of the defendant’s financial inconvenience, I also do not think a period of 21 days is too long.  I therefore set aside the Registrar’s order.  I further order that the execution of the amended judgment be stayed on condition that the defendant do pay into court $2.1 million within 21 days from today, failing which the plaintiff be at liberty to execute the amended judgment without further order. 

22.  Since this appeal is a prelude to the defendant’s appeal against Master Yu’s order, I reserve the question of costs of this appeal for the disposal by the judge hearing that appeal.