SPADE WELL LTD v. KWONG KAM WING

DCCJ6633/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6633 OF 2002

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RULING

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1. The plaintiff is a contractor for interior fitting-out works. The defendant is a metal works contractor. The plaintiff's action arises out of two agreements between the parties, the first relating to works to be done at the Shatin Racecourse and the second for works to be done at a branch of the Standard Chartered Bank.

2. The plaintiff was a subcontractor for interior fitting-out works to be done at the Shatin Racecourse for the Hong Kong Jockey Club. The plaintiff under the first agreement dated 25 June 2002 subcontracted to the defendant, for a lump sum price of $343,000.00 the supply and installation of certain prefabricated items including sets of SVT which is a metal frame for holding an automatic ticket machine. The plaintiff supplied the defendant with the a full-size mock-up of the SVT Type 1 Mark 40 ("the mock-up"), on about 11 July 2002, in order to facilitate the defendant's work.

3. The plaintiff now claims that the prefabricated items were defective and produces an architect's defect list dated 14 August 2002 in support of that claim. It claims that the defendant agreed to rectify the defects but failed to do so and ultimately the defendant evinced an intention no longer to be bound by the agreement and repudiated it. The plaintiff accepted the repudiation but then had to engage another contractor to re-do the work. It claims the return of the mock-up, damages and a declaration that the defendant indemnify it for liquidated damages for delay, for which it will be liable to the main contractor.

4. The second agreement was for the installation of an automatic teller machine booth. Again the plaintiff claims that the goods supplied were defective and the defendant failed to rectify the defects. The plaintiff claims for some $55,400.00 which it was charged by the bank for rectification plus further sums of $24,000 and $13,021.90 which it had to expend on making good the defects.

5. The defendant denies that the goods supplied under the first agreement were defective and counterclaims for $222,950.00 being the balance of outstanding contract price. With regard to the mock-up the defendant in its defence pleads simply that it inquired of the plaintiff if the plaintiff wanted it back, and was told to throw it away. It denies that the goods supplied under the second agreement were defective and counterclaims for an outstanding sum of $10,000.00.

6. The plaintiff now applies under Order 29 Rule 1 of the Rules of the District Court for the return of the mock-up. In support the plaintiff's director affirms that there was no contractual provision for its supply; it was made up and given to the defendant to make the defendant's job easier. The main contractor has now been instructed to replace all the SVT because of substantial defects; and the main contractor's architect has made up a replacement programme for this. The plaintiff now urgently needs the mock-up for the purpose of carrying out the rectification works, for which it is indispensable. If the defendant does not return the mock-up, the plaintiff will have to make another one. This will take about four weeks and cost about $15,000.00. It will take a further two weeks to get the re-approval of the architect, but this may be difficult to obtain because it is beyond the architect's original scope of service. Further, if there is any more delay in replacing the STV this will be considered as repudiation of the agreement between the main contractor and the plaintiff and the main contractor will claim substantial damages against the plaintiff, whose reputation will be ruined.

7. The plaintiff produces a letter from the architect to the main contractor dated 17 September 2002, in which the architect suggests the fabrication of a control mock-up STV to ensure an acceptable standard of workmanship and finish, and a letter from the architect to the main contractor dated 21 November 2002 indicating that the plaintiff had agreed to provide a sample SVT prior to reinstallation work but so far no date of inspection had been given.

8. The defendant's director says in his affirmation that he has a counterclaim of $232,950.00 which is about four times the plaintiff's claim, which is of course true if one has regard only to the plaintiff's liquidated claim under the second agreement. He fears that since the plaintiff is a limited company with a paid-up capital of $10,000.00, if it gets the mock-up back it will evade its liability to the defendant by winding itself up. He does not dispute that the plaintiff owns the mock-up but believes that he is entitled to retain it by virtue of a lien. He will therefore return the mock-up if the plaintiff will pay into court a sum equivalent to the defendant's counterclaim.

9. The principles to be applied in deciding whether to order an interim injunction are set out in the case of American Cyanamid Co. v. Ethicon Ltd. [1975] A.C. 396. The first requirement is that the Plaintiff must show "a serious question to be tried" which is "not frivolous or vexatious" and has "a real prospect of success" on the claim for a permanent injunction. See the Supreme Court Practice, 1999 Edition, Para. 29/L/4. If there is a serious question to be tried, then it is necessary to consider whether damages would be an adequate remedy for a party injured by the court's grant of or failure to grant an injunction, and if not, where the balance of convenience lies.

10. The plaintiff's claim for damages against the defendant is clearly a serious question to be tried. So no doubt is the defendant's counterclaim for balance of payment of the price of the goods. However the question of lien is less clear. The plaintiff's argument seems to be that there cannot be a lien, because the work was never completed, and in any event lien was not raised in the pleadings. The defendant's argument seems to be that there the work was completed and there must be a lien because the situation is analogous to that where a professional person, e.g. a solicitor, has a lien over papers deposited by his client for the work he does.

11. I am not sure that the defendant has a lien at all. There is no contractual right of lien here, nor any evidence of a customary right of lien. What the defendant is claiming is a general lien, i.e. a right to retain chattels in possession until all claims against the owner have been satisfied. A general lien has been established at common law in favour of various categories of persons. See Halsbury's Laws of England, 4th Edition Reissue, Vol 28: Lien, para 727. Solicitors are one such category; but the defendant, as a builder or maker of metal items does not seem to come within the categories mentioned. Where work is done on a chattel entrusted to a person, he will have a particular lien over it for the work he does on it by way of improvement or repair. Halsbury explains at para. 740 that the lien for work done applies only to the chattel produced or on which work is done and cites various cases where the lien did not apply. In particular, there was no lien over plastic injection moulds bailed to manufacturers for the purpose of manufacturing toys. Welsh Development Agency(Holdings) Ltd. v Modern Injection Mouldings Ltd., QBD, 9 March 1986, unreported.

12. Here the plaintiff gave the defendant the mock-up, apparently gratuitously, as a sample or template of the SVT which the defendant was to make. No work was to be done on the mock-up. I do not see that the defendant can claim either a general or a special lien over the mock-up, for its charges for making the SVT, assuming that that work has been completed. It would follow that the defendant has no right to retain the mock-up.

13. In case I am wrong it is necessary to go on to consider the question of the balance of convenience. I think this is pretty obvious. If the plaintiff has the mock-up it will be able to give it to the new subcontractor to use as a model for SVT to be made. It will save the time and cost of making up a new one and getting it approved by the main contractor's architect. Part of the plaintiff's claim is to pass on to the defendant liquidated damages which the main contractor can charge it for delay. Granted that we do not know how much those damages will be, it is obvious that if the plaintiff has the mock-up delay will be reduced and that head of damages mitigated. If, on the other hand, the defendant keeps the mock-up, it will have a metal structure which is useless to it and not saleable to anyone else, in other words a waste of space. As to the assertion that the defendant fears that the plaintiff will evade its liability by winding itself up, so that if the defendant obtains judgment on its counterclaim it will be left with an empty judgment, there is simply no evidence that that is likely to happen. The defendant's assertion that the plaintiff has paid-up capital of $10,000.00 is no doubt true but that fact of itself would in my view be insufficient on its own for a finding, for purposes of section 357 of the Companies Ordinance, Cap. 32 that there is reason to believe that the plaintiff would be unable to pay the defendant's costs if the defendant were successful. A fortiori it is insufficient on its own to raise the inference that the plaintiff is likely to evade liability by winding itself up. The balance of convenience is obviously on the side of the plaintiff.

14. If the defendant has no lien over it, the plaintiff must have the mock-up back. If it has a lien, the balance of convenience is on the side of the plaintiff and so the plaintiff must have the mock-up back. There will therefore be an order in terms the first paragraph of the plaintiff's summons. The costs of the summons will be (nisi) to the plaintiff in any event. The defendant was represented by counsel but I cannot see that this was a matter that needed counsel so there will be no certificate for counsel.