YOUNG'S ENGINEERING CO. LTD. v. HANG SING CONSTRUCTION CO. LTD.

IN THE COURT OF APPEAL

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JUDGMENT

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Sir Alan Huggins, V.-P. :

1. In this action the Plaintiffs claim as sub-contractors against the head contractor in relation to air-conditioning work done at a building being erected for Cathay Pacific Airways Ltd. at Kai Tak.

2. The contention of the Plaintiffs is that they have done the work, that the engineer has certified that the work has been done and that as a result the employer has paid the head contractor. Therefore, it says, it is entitled to be paid itself. The head contractor says that it has a right of set-off in respect of delays by the sub-contractor as a result of which the head contractor has become liable to the employer. The Plaintiff sought summary judgment. The Master gave conditional leave to defend in respect of part of the claim and entered judgment in respect of the rest, and it is in respect of the granting of summary judgment that the Defendant appeals.

3. The judge in my view rightly held, and this is not contested, that there is a Common Law right of set off where that right has not been expressly removed by the terms of the contract, and he rightly held that the terms of the contract here did not remove that right. The judge - again, in my view, rightly - said that the question here was whether the Defendant had shown that it had what he described as "a real defence by way of set-off which ought to be investigated". At the end of his judgment he said that there was what he described as a "shadowy defence" and for that reason he held that there should be summary judgment.

4. It is argued on behalf of the Plaintiffs that when he used the word "shadowy", what he meant was that there was no defence at all - that it was not a real defence but a contrived defence aimed at delaying judgment. I cannot accept that it is clear that that is what the learned judge was saying. He never said there was no arguable defence: what he said was there was "a shadowy defence" - that is that there was a defence, albeit he was inclined not to believe that it was a sound defence which would succeed.

5. In any event, the matter as it has been argued before us is that the defence which has been put up was wholly bogus and that therefore the view of the judge that there was no real defence is to be supported. We have been taken through the correspondence and it is suggested that the defence which it is sought to argue has been raised at so late a stage that it is manifestly bogus. For myself I am quite unable to accept that it has been shown beyond a peradventure that this defence which it is sought to put up is unarguable. It seems to me that there is a possibility - to say nothing more - that it will succeed and therefore in my view this appeal will have to be allowed, and I think there should be unconditional leave to defend.

Cons, J.A.:

6. I agree with my Lord that the appeal should be allowed. I respectfully have to disagree with the judge below. Firstly he reads into the correspondence contradictions which, for my part, I must confess I am unable to find; secondly, although the question of overheads on which the present defence is based was raised late in the discussions between the parties, it was not raised so late in the litigation that it must necessarily be considered bogus; and thirdly, that although if the defence is made good at the trial it may be that some deductions to the set-off claimed may have to be made in respect of delay by other sub-contractors, I cannot see on the Affidavits before us that those are going substantially to affect the situation. For these reasons I too would give the Defendants unconditional leave to defend.

Fuad, J.A.:

7. I agree with both my Lords that this appeal should be allowed. In my judgment the material before us raised a fair probability of defence of a set-off sufficient to meet the amount claimed, and so the Defendant should be entitled to have leave to defend. I am not persuaded that there is any indication at this stage that the defence is either "shadowy" or "sham" so that leave should be made conditional upon payment into court. I, like my brothers, have been unable to discern anything suspicious about the way the proposed defence has been presented so as to justify conditional leave. Therefore I would agree with my Lords with the order they have proposed, that unconditional leave to defend should be granted.

11th December 1984