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CACV 186/2015
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 186 of 2015
(ON APPEAL FROM HCA 1116 OF 2014)
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BETWEEN
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ASIA INSURANCE COMPANY, LIMITED |
Plaintiff |
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(亞洲保險有限公司) |
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and
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WARM HOME CONSTRUCTION CO., LTD. |
1st Defendant |
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(嘉群建築有限公司) |
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NG SUI CHEUNG (伍瑞祥) |
2nd Defendant |
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LAM SUK CHUN (林淑珍) |
3rd Defendant |
| _____________ |
| Before: Hon Cheung, Yuen and Kwan JJA in Court |
| Date of Hearing: 5 May 2016 |
| Date of Judgment: 5 May 2016 |
| Date of Reasons for Judgment: 16 May 2016 |
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REASONS FOR JUDGMENT
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Hon Cheung JA:
1. I agree with the Reasons for Judgment of Yuen JA.
Hon Yuen JA:
2.1. This is the 2nd defendant’s appeal from a Decision of DHCJ Campbell-Moffat SC given on 16 July 2015 (“the Decision”). The learned judge had dismissed his appeal from an order of Master J Wong made on 12 June 2015. The master had refused to set aside the default judgment entered against the 2nd defendant on 22 July 2014.
2.2. At the conclusion of the hearing, we dismissed the 2nd defendant’s appeal with costs to the plaintiff. My reasons appear below.
Background
3.1. The 2nd defendant was a director and shareholder of the 1st defendant, a construction company.
3.2. The 1st defendant company was interested in undertaking certain building renovation works at Mei Foo Sun Chuen - Stage VIII, part of a residential development. Broadway-Nassau Investments Ltd (“BNIL”) was the agent of the Incorporated Owners (“the IO”) for those works.
4.1. A bond equal to 10% of the contract sum of $56,650,000 was required to guarantee the 1st defendant’s performance of the contract.
4.2. The defendants approached the plaintiff Asia Insurance Co Ltd to provide the performance bond.
Indemnity Agreement
5. On 3 May 2013, the 2nd defendant executed an indemnity agreement (“the Indemnity Agreement”) in favour of the plaintiff in which he agreed to indemnify it against all claims, liabilities and expenses which it may incur as a consequence of its agreeing to stand surety for the 1st defendant in a bond. It is significant that in the indemnity agreement, it was stated that the bond was in favour of “[BNIL] for and on behalf of the [IO] of Mei Foo Sun Chuen - Stage VIII”.
5.1. Clause 1 provided:
“1. I/We hereby unconditionally and irrevocably agree to indemnify the Company and keep the Company indemnified against all claims, demands, actions, liabilities, damages, costs, losses and expenses of whatever nature which the Company may incur in any way as a consequence of the Company giving the Guarantee and, without limiting the foregoing, to pay to the Company on demand all sums which may be claimed from the Company or which the Company may pay or become liable to pay under or by reason of or in connection with the Guarantee including, without limitation, all costs and expenses (including legal fees and other fees on a full indemnity basis) incurred by the Company in defending or otherwise resisting any claim or threatened claim”.
5.2. Clause 3 provided:
“3. The Company may pay immediately any and all amounts claimed from it or which the Company may become liable to pay under or in connection with the Guarantee without any reference to or further authority from me/us and without being under any duty to enquire whether any claims on the Company are properly made, even if I/we dispute the validity of any such claim, and I/we shall accept any claim on the Company and any payment which the Company makes purporting to be in accordance with the Guarantee as binding on me/us”.
The Works Contract
6. On 12 July 2013, a contract was executed for the renovation works (“the Works Contract”). It was made between “[BNIL] for and on behalf of the [IO] of Mei Foo Sun Chuen - Stage VIII” (as Employer) and the 1st defendant (as Main Contractor).
The Bond
7. On 22 August 2013, the plaintiff as Surety issued a demand performance bond in the sum of $5,665,000 (“the Bond”). It is significant that the Bond was in favour of “[BNIL] for and on behalf of the [IO] of Mei Foo Sun Chuen - Stage VIII (hereinafter called ‘the Employer’)”.
7.1. Clause 2 provided:
“2. Upon demand in writing made by two authorised signatories of the Employer upon the Surety from time to time or at any time during the validity of this Bond without proof or contestation or further conditions on the Employer the Surety shall forthwith pay to the Employer the sum or sums mentioned in the said demand”.
7.2. Clause 4 provided:
“4. The obligations of the Main Contractor and the Surety hereunder shall be continuing and shall remain in operation until the Contract shall have been in every respect duly and properly discharged performed and completed according to the true purport intent and meaning thereof or until this Bond shall have been paid in full whichever shall first occur”.
Demand on the Bond
8. On 7 May 2014, BNIL sent a letter to the plaintiff. The first paragraph stated:
“We, [BNIL] for and on behalf of The [IO] of Mei Foo Sun Chuen – Stage VIII, being the Employer of the captioned Contract, are writing to retrieve the Bond amount at HKD$5,665,000 (Say Hong Kong Dollars Five Million Six Hundred Sixty-Five Thousand Only) from your office (the Surety) according to Clause 2 of the conditions of the Bond No. AMK/PPB/13-51002298 dated 22nd August 2013”.
The letter was signed by way of a chop stating “For and on behalf of [BNIL]” with two signatures appearing as “Authorized Signature”.
Plaintiff’s response
9.1. The next day 8 May 2014, the plaintiff replied as follows:
“According to the condition 2 of the captioned Bond, please kindly let us have the demand letter signed by two authorised signatories of The [IO] of Mei Foo Sun Chuen - Stage VIII, in the contents of the said demand letter, please specific [sic] the full name, position and Hong Kong Identity Card number of the authorized persons of the Employer for our further handling”.
9.2. However on the same day, the plaintiff wrote to the defendants saying amongst other things:
“Please be informed that we have received a demand letter from [BNIL] to make a call on the Bond in the sum of HK$5,665,000.00 which we consider it may be liable. Enclosed the letter dated 7th May 2014 from [BNIL] for your reference.
Demand is hereby made that your company shall forthwith deposit with us in the sum of HK$5,665,000 payable to ‘Asia Insurance Co., Ltd.’ within the next 7 days from the date hereof in discharge of your liability under the Indemnity”.
Termination of the Works Contract
10. On 9 May 2014, the architect acting on behalf of the Employer terminated the Works Contract with the 1st defendant.
Reply from Employer’s solicitors
11.1. On 13 May 2014, solicitors instructed by the IO wrote to the plaintiff stating that the demand of 7 May 2014 was sufficient because first, BNIL had also signed the Works Contract on behalf of the IO and additionally, the IO had authorized BNIL to issue the demand on which there were two authorized signatories.
11.2. The solicitors demanded payment from the plaintiff within the next 14 days.
Payment by plaintiff
12.1. On 30 May 2014 the plaintiff made payment of the sum demanded and obtained a Release and Discharge from the IO of its (the plaintiff’s) obligations under the Bond.
12.2. On the same day the plaintiff issued a letter of demand to the 2nd defendant under the Indemnity Agreement.
Legal proceedings
13. A writ was issued against the three defendants on 19 June 2014. None of the defendants filed a defence. On 12 July 2014, the 2nd defendant as director of the 1st defendant signed a letter to the plaintiff proposing payment by instalments.
Default Judgment and subsequent events
14. It is not disputed that a regular default judgment was entered against the 2nd defendant on 22 July 2014 and the judgment was properly served on him.
15. The defendants made further proposals for payment by instalments which were not accepted.
16. On 21 August 2014, a statutory demand was served on the 2nd defendant.
17.1. On 23 September 2014, the 1st defendant provided to the plaintiff a number of post dated cheques signed by the 2nd defendant. On 30 September 2014, the first cheque in the sum of $200,000 was honoured.
17.2. However on 17 November 2014,the presentation of the 2nd cheque did not result in any payment.
18. On 19 December 2014, the plaintiff presented a bankruptcy petition against the 2nd defendant. The petition was adjourned pending an application by the 2nd defendant to set aside the default judgment.
Application to set aside default judgment
19.1. On 23 April 2015, the 2nd defendant applied by summons to set aside the default judgment.
19.2. As mentioned earlier in these Reasons for Judgment, the application was refused by the master. The 2nd defendant then appealed to the judge.
The judge’s Decision
20. For reasons appearing in the Decision, the judge also refused the application, holding that he had not shown a defence on the merits with a real prospect of success.
Appeal
21. The 2nd defendant filed a notice of appeal on 31 July 2015.
Discussion
22. It is clear that the judge’s decision was made in the exercise of the court’s discretion. However it was submitted by Mr Ivan Cheung, counsel for the 2nd defendant, that the judge was wrong in a matter of construction.
23. Essentially it was submitted by Mr Cheung that the demand made by BNIL on 7 May 2014 did not comply with Clause 2 of the Bond (set out at para. 7.1 above) because the demand was only made by BNIL and not the IO who was the Employer, and the signatures on the demand were only authorized signatories of BNIL, but not of the IO. Mr Cheung submitted that when the Works Contract was terminated on 9 May 2014, the Bond thereupon expired and hence the alleged defect in the demand could not be cured.
24.1. I agree with the judge that that is not a defence on the merits with a real prospect of success. It ignores the definition of “Employer” in the Bond which is “[BNIL] for and on behalf of the [IO] of Mei Foo Sun Chuen – Stage VIII (hereinafter called ‘the Employer’)”. In other words, the Bond was given in favour of an agent with a disclosed principal, and BNIL was entitled to make a demand for and on behalf of the IO.
24.2. The demand made by “[BNIL] for and on behalf of the [IO] of Mei Foo Sun Chuen – Stage VIII” was in identical terms to those used to define the “Employer” in the Bond. The Indemnity Agreement also contemplated a bond to be given in identical terms.
24.3. Accordingly the demand only needed to be signed by two authorised signatories of “[BNIL] for and on behalf of the [IO] of Mei Foo Sun Chuen – Stage VIII” which was an entity entitled to make the demand.
25. In any event, I do not think it is right to say that the Bond expired when the Works Contract was terminated on 9 May 2014. Clause 4 of the Bond (set out at para.7.2 above) made it clear that the Bond would remain in operation until the Works Contract “shall have been in every respect duly and properly discharged performed and completed according to the true purport intent and meaning thereof”. As noted by the judge in para. 11 of the Decision, the 2nd defendant accepted that the 1st Defendant was in breach of the Works Contract.
Order
26. For the above reasons, there was no reason to disturb the exercise of the judge’s discretion and the appeal was dismissed with costs to the plaintiff. I did not think it was a case which called for two counsel.
Hon Kwan JA:
27. I agree with the reasons for judgment of Yuen JA.
(Peter CHEUNG)
Justice of Appeal |
(Maria YUEN)
Justice of Appeal |
(Susan KWAN)
Justice of Appeal |
Mr C K Wong and Ms Wallis Chung, instructed by Paul C K Tang & Chiu, for the plaintiff
Mr Ivan Cheung, instructed by Wong & Lawyers, for the 2nd defendant
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