XCHRX AQUALITY ENGINEERING CO. LTD. v. WELL TECH GEOWORKS ENGINEERING LTD.

HCA 12756/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12756 OF 1999

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J U D G M E N T

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1. I have before me an appeal from Master C B Chan, the master having granted unconditional leave to defend to the Defendant. The Plaintiff appeals that decision and seeks summary judgment.

2. I am told that the Defendant company was legally represented before the master. This morning, however, the Defendant has not been represented nor has any application being made in terms of O. 5 r. 6(3) for it to be represented by one of its directors. Having said this, Mr Chan, who is a director of the Defendant company, has appeared. He made it clear however that he did not wish to make any submissions on behalf of the Defendant company and was here for two reasons; first, out of respect to the court and, second, as an interested observer of the proceedings. Accordingly, I have heard this appeal on the basis that the Plaintiff only is represented.

3. It is trite that the purpose of an application under O. 14 is to enable a plaintiff to obtain summary judgment without trial if it is able to prove its claim clearly and if the Defendant is unable to set up a bona fide defence or raise an issue against the claim which ought to be tried. When a judge is satisfied not only that there is no defence but there is no arguable point that should be resolved at trial, it is his duty to give judgment for the plaintiff. I should also mention that where part of a claim is clearly due, the court has the duty to order judgment for that sum giving leave to defend only in respect of the residue.

4. Before considering the points in issue in this matter, I must set out briefly the factual background. It appears that the Hong Kong Government had contracted with Gammon, a major engineering firm in Hong Kong, to carry out certain civil engineering works. These works, inter alia, involved slope protection and slope maintenance works. The Defendant company was - as is common in Hong Kong - acting as a sub-contractor while the Plaintiff was sub-contracted to it. It is not disputed that, if the Plaintiff is due any monies, those funds are payable by the Defendant.

5. It is common cause that there was an oral agreement entered into in or about April 1998 in terms of which the Defendant engaged the Plaintiff to carry out slope works. In its Re-amended Statement of Claim the Plaintiff pleaded the matter in simple terms as follows:

"In or about April 1998, at the Defendant's request, the Plaintiff carried out the geotechnical works at Section 5 of Kwun Tong Slope. The Plaintiff completed the works on or about 23 March 1999."

6. In its pleadings the Plaintiff company has continued with the following averment, and I quote:

"The Defendant is indebted to the Plaintiff in a sum of $2,311,767.30 being the balance of the cost of the works due from the Defendant to the Plaintiff."

7. The Plaintiff has then set out the particulars of how that sum is calculated. There is no need for me at this juncture to recite all the details.

8. The Defendant in essence has pleaded that the agreement reached between the parties was an agreement described as a 'back-to-back' agreement with the head contract. I understand this to mean that it was agreed orally that the terms and conditions of the main contract would apply mutatis mutandis to the contract entered into between the parties. In the alternative, it was pleaded by the Defendant that if there was no oral agreement to this effect then this form of agreement was a trade practice which the parties well understood and agreed to abide by. The defence was that the agreement and/or the trade practice meant that an independent engineer - invariably a quantity surveyor - would assess the work done and materials supplied and payment would only be released against that engineer or quantity surveyor's certificate.

9. Before dealing with that issue, it should be mentioned that a meeting took place on 29 April 1999 between the representatives of the Plaintiff and Defendant and the main contractor, Gammon. That meeting is referred to by Mr Vincent Yik, an engineer employed by Gammon who attended the meeting, in an affirmation dated 3 April 2000. Mr Yik said that it was necessary for Gammon to agree final accounts with its sub-contractors, and, if relevant, their own sub-contractors as soon as possible after the work has been completed. This was necessary, he said, so that Gammon's liability to pay its sub-contractors would be known before its entitlement to be paid by government was settled. Mr Yik said that the meeting of 29 April 1999 was convened as part of this process. In my judgment, it is pertinent to note that Mr Yik spoke of there being several earlier meetings convened with Mr Yuen, representing the Defendant company, and Mr Tsoi, representing the Plaintiff company. These meetings had been convened to work out the quantity and rate of work but no agreement had been reached at these earlier meetings. That was why, he said, the meeting of 29 April 1999 was held. In respect of that meeting, he said that agreement was reached. In this regard, I can do no better than quote from his affirmation of 28 February 2000 in which he said the following:

"At the meeting, I, Mr Yuen and Mr Tsoi went through the Schedule of Works prepared by the Plaintiff in great detail and item by item. I had with me all the documents relating to the project and was in a position to determine the exact quantity of work already performed for the Site. In the course of computation, I heard Mr Tsoi's representations and also Mr Yuen's representations. Based on their representations and the documentation including the Government's engineer's certificates available before me, I allowed some of the items claimed by the Plaintiff and adjusted the amounts of some items. For the items which I disallowed, Mr Yuen crossed out the figures under those items on the Schedule of Works. Next to the figures which were crossed out, Mr Yuen then wrote down the new figures (signifying the amounts which allows). The whole process was conducted by me in a fair manner and both Mr Yuen and Mr Tsoi accepted my decision. Eventually, I worked out that the total costs of the geotechnical works (based on the rates as agreed between the Defendant and the Plaintiff) performed by the Plaintiff for the Defendant should be HK$7,282,267."

10. Mr Yip continued by saying that Mr Yuen - acting on behalf of the Defendant - accepted the figures and signed his name on each page of the Schedule of Works. He said that he himself wrote down the words, and I quote, "Final Measurement Agreed" on the front page of the Schedule of Works and signed his name on it for the purpose of confirming the accuracy of the computation.

11. As far as the Plaintiff's claim is concerned, it has used this final agreement of measurement as the basis for that claim. As Mr Yik stated in his affirmation, the agreed amount consists of two figures, one being for work done and the other being for variations.

12. The Plaintiff has not sued on this agreement at such. It has sued for work done but has referred to this agreement as the best possible proof that the Defendant agreed with the value of the work done.

13. Mr Houghton, who appears for the Plaintiff, has argued that the Defendant is unable to set up a bona fide defence in respect of its allegation that an oral agreement was reached in the way it has pleaded. He had said that there is no evidence of any such 'back-to-back' agreement and in any event, such an agreement, having regard to the terms of the head contract, would simply not be workable. He has referred me to numerous clauses in the head contract - which is a voluminous document - and has pointed to a number of clauses which would clearly not be workable as between the parties. He has asked the rhetorical question: 'which clauses were to be imported and which were not?' I can see merit in his argument which I accept.

14. What then of the question of trade practice or an implication that terms would be included. For there to be any implied terms as pleaded they should be so obvious that they go without saying. I can come nowhere near to finding that to be the case in the present instance. As far as custom is concerned, I have been referred to Chitty on Contracts 28th ed. Vol. 1 at page 652 where the learned authors state the following:

"If there is an invariable, certain and general usage or custom of any particular trade or place, the law will imply on the part of one who contracts or employs another to contract for him upon a matter to which such usage or custom has reference a promise for the benefit of the other party in conformity with such usage or custom; provided there is no inconsistency between the usage and the terms of the contract. To be binding, however, the usage must be notorious, certain and reasonable, and not contrary to law; and it must also be something more than a mere trade practice."

15. Now, by that, I understand the learned authors to be saying that the trade, usage or custom must be so notorious and so certain - and at all times reasonable - that it would clearly, without anything further being said, be binding on the parties. But in the present case, I can see no evidence which comes anywhere near that high standard. If this was a notorious and certain custom, why did the Defendant's representative attend the meeting on 29 April 1999 and agree the value of work done without protest at the procedures being adopted? Why indeed did he attend the earlier meetings in an attempt to reach an agreement based on those same procedures? Clearly the Defendant's representative was happy for Gammon's representative, a qualified engineer, to do the necessary calculations and to conduct the meeting at which values were agreed.

16. I am satisfied, in all the circumstances, that the evidence of that meeting and the evidence of the value of work agreed at that meeting must prevail. I am also satisfied that it is the most cogent, indeed conclusive, evidence of the value of work agreed between the parties. The Defendant does not deny such a meeting, it does not deny the arithmetical calculations. It suggests, and I put the term no higher than that, only that its representative, Mr Yuen, lacked authority to reach such an agreement. But Mr Yuen was the foreman, Mr Yuen had attended pervious meetings without complaint. Mr Yuen was also involved in this kind of work; namely, work related to calculating payments.

17. In any event, as Mr Houghton had said, the lack of authority argument misses the point here. The Plaintiff is not suing on the agreement reached, it is simply using the agreement reached as conclusive evidence that the value of work had already been agreed between the parties.

18. Mr Houghton has also made the point that if an independent surveyor was to be brought in; namely, if this was the notorious trade custom, then why has one not already been employed to calculate the amount due? The Defendant company has not employed an independent surveyor to carry out such a task even though it has, in its pleadings, averred a reduced value of work done.

19. In my judgment, for the purposes of O. 14, the Defendant company has in the circumstances failed to set up a bona fide defence or raised an issue which ought to be tried.

20. By way of a post-script, I would mention that the Defendant company has retained a 10% retention of $728,226.00. This is calculated directly on the figure agreed as being the value of work done at the April meeting. Mr Houghton has asked why the Defendant company would retain a 10% figure calculated on that $7,282,267.00 when that figure was disputed in the first place. He has employed the English expression that the Defendant "cannot have its cake and eat it". By that I understand him to mean that Defendant cannot say on the one hand that the $7,282,000.00 is an incorrect figure and yet, at the same time, calculate its retention monies on that very figure.

21. The matter, however, does not end here because there are certain contra charges. The Plaintiff accepts that there are valid charges in this regard and has calculated them at the figure of $793,482.50.

22. The Defendant company in its original pleadings calculated the contra charges in the sum of $2,515,661.33. However, Mr Chan in his affirmation filed in these proceedings has set the contra charges at the lesser figure of $1,893,578.00. The figures for contra charges had not been verified by a quantity surveyor on behalf of the Defendant. The Plaintiff has argued that it was not supplied the necessary invoices until proceedings had already been instituted and Defendant failed to attend any meeting convened specifically for the purpose of attempting to resolve the contra charges issue.

23. While I have no concern regarding summary judgment based on the value of work being $7,282,267.00, it is not so easy in respect of the contra charges. Does Defendant, despite the weaknesses in its defence, have a fairly arguable case? The Plaintiff accepts that some form of set-off is due by reason of these contra charges but says the amount sought by the Defendant is 'grossly excessive and wholly unsubstantiated'. I believe the phrase 'wholly unsubstantiated' accurately reflects the position. Defendant appears to have just plucked figures out of the air. If there had been some form of substantiation that would have been different. But in its absence and as there are already contradictions in the proceedings, I am satisfied that summary judgment should be granted on the basis of the contra charges calculated by the Plaintiff.

24. That leaves the issue of the 10% retention. But I have been advised by Mr Houghton that this is the subject of other proceedings. The claim for $2,311,767.30 does not include the $728,000.00 odd for retention.

25. In all the circumstances I am satisfied that the Plaintiff is entitled to judgment for the sum of $2,311,767.30 as claimed together with interest and also the costs of proceedings before the master and this court. Judgment is, therefore, granted to the Plaintiff as prayed. The appeal is allowed.