XCHRX JIM KAM FAI, TONY t/a JIM'S DECORATION ENGINEERING CO. v. COLLECTIONS

1998, No. Con. 2

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Background and Plaintiff's Claims

1. The defendant is the main contractor under a contract with the Architectural Services Department of the government for certain design and fitting out work. The plaintiff is the defendant's subcontractor. Other subcontractors were also involved in the work. The plaintiff's agreement with the defendant provided that the defendant would pay the plaintiff "on a back to back basis after 21 days upon advice from the Employer through a computer printout and within ten workings days upon money received by the defendant". The agreement also provided that the defendant should deduct 14% from the payment as "its overhead and design costs and management fee". This percentage was increased to 17% in respect of works orders issued on or after 1 September 1996.

2. On 12 September 1997, the plaintiff issued a writ under action A9620/97. On 16 September 1997, he issued another writ under action 9796/97. These two actions have been transferred to the Construction and Arbitration List.

3. In action 9620, the plaintiff alleges that, upon being notified that payment of $1,141,280.82 (after deduction of the defendant's percentage) had been made by the employer to the defendant, the plaintiff issued invoices for payment to it in this sum. The plaintiff goes on to allege that, on 19 August 1997, the plaintiff's solicitors wrote to the defendant demanding payment, and the defendant offered to pay the amount in two equal instalments; one on 26 August 1997 and the other on 5 September 1997. The plaintiff accepted this. The plaintiff says that the defendant paid the first instalment of $570,640.41 on 26 August 1997, but the balance of $570,640.41 remains unpaid despite demand.

4. In action 9796, the plaintiff alleges that, upon being notified that payment of $1,157,999.78 (after deduction of the defendant's percentage) had been made by the employer to the defendant, the plaintiff issued invoices for payment to it in the sums of $896,549.78 and $261,450, but, despite demand the defendant has not paid.

5. On 30 September 1997, the plaintiff issued summonses seeking summary judgment for the two sums claimed.

The Defences and Plaintiff's Answers

6. The defendant has not yet filed any defence in these actions, but has filed identical affidavits in both matters. These affidavits are by Mr Mark Taylor, who is the defendant's commercial director.

7. What Mr Taylor does not say in these affidavits is as important as what he does say. It is particularly noticeable that Mr Taylor does not deny the plaintiff's allegations about the defendant's liability to make payment when paid, and that the defendant was paid by the employer. It is upon this basis that the plaintiff makes his claims, and the defendant does not suggest that the payments it received from the employer were subject to any subsisting claims by the employer for breaches of contract arising out of delay, defects or otherwise. Indeed, if there were such claims, it is improbable that the employer would have paid the defendant. The works were being done by the plaintiff as a subcontractor for the defendant. On the face of the matter, the only basis on which the defendant could claim damages for breaches by the plaintiff would be on the basis of the defendant's liability to the employer arising out of these breaches. Mr Taylor does not suggest otherwise, and does not suggest that the defendant is subject to any such claims by the employer, or, in any event, any such claims that have not already been taken into account when the employer paid the defendant.

8. The first point made by Mr Taylor is that the agreements with the plaintiff "are stated to be subject to the conditions of the Main Contract which arguably provides for Arbitration as a means of resolving disputes". I have to say that this statement is typical of the way in which Mr Taylor gives his evidence in these matters. His statements are vague and, on examination in the light of all the evidence, prove to be inaccurate.

9. The agreements between the plaintiff and the defendant are not stated generally to be subject to the conditions of the main contract. What the agreement between the plaintiff and the defendant actually provides is that the plaintiff "shall . . . execute and complete the building works . . . subject to and in accordance with the Conditions and Specification of the Contract and this Agreement to the satisfaction of the Employer, the Employer's Representative and the Contractor." This provision cannot serve to incorporate the arbitration clause between the employer and the defendant into the contract between the plaintiff and the defendant. In any event, one of the causes of action by the plaintiff in action 9620 is based on an independent agreement to pay quite outside the building contract.

10. Mr Taylor says that the plaintiff's work "were not up to scratch" in some areas. This is an odd way of expressing a counterclaim, which is what Mr Taylor is doing. One would expect, if such were the case, for Mr Taylor to say that, because the plaintiff was in breach, the defendant is liable to the employer and to particularise the employer's claim. The defendant makes no attempt to do this.

11. The defendant says that areas in respect of which the plaintiff's work was "not up to scratch" were -

(i) the works were completed late;

(ii) 401 demerit points were accrued from the employer as a direct result of the plaintiff's breaches;

(iii) defective works remain incomplete;

(iv) pneumoconiosis and industrial levies remain unpaid;

(v) water fees for the account for the plaintiff are unpaid; and

(vi) waterproofing work carried out in substitution for the plaintiff requires to be deducted from any amounts due and payable.

12. The last three items are not disputed by the plaintiff for the purpose of these proceedings. He is content that the sums of $70,524.74 in respect of the levies, $101 in respect of water fees and $51,192 in respect of the waterproofing work should be deducted from any sum awarded to him.

13. Regarding the delays, Mr Taylor says that the plaintiff "was late in completing the works and liquidated damages for [12 jobs] are ascertained to be HK$2,052,784.61 in total as per the supporting now produced . . ." That is all Mr Taylor says about this claim by the defendant. There is no provision for liquidated damages in the contract between the plaintiff and the defendant, so it must be that Mr Taylor is talking about liquidated damages due by the defendant to the employer. If this were the case, one would have expected him to say so, and to back this up with contemporaneous documents; at least some evidence that the employer is making a claim. As it is, he makes no attempt whatsoever to justify this large claim of over $2 million. No calculations or other justification is provided. It would indeed be strange if the employer was making a serious claim for this large sum, and, at the same time, paid about the same sum to the defendant. This is not explained by the defendant, and Mr Finley did not try to explain it in argument.

14. On the other hand, the plaintiff demonstrates convincingly, with the backing of contemporaneous documents, that, although there were delays, these were the defendant's responsibility. There is no evidence from the defendant about this, and Mr Finley did not attempt to deal with it.

15. Regarding demerit points, Mr Taylor says "In pursuance of clause 13 of the Agreements, the Plaintiff having accrued a total of 401 demerit points under [4 jobs], the Defendant is entitled to claim the sum of HK$401,000.00 from the Plaintiff, the supporting for which is now produced . . ." Again, the defence is stated as briefly as that. The documents said to be "the supporting" are not; they are nothing more than the defendant's own allocation of the demerit points incurred as the responsibility of the plaintiff. No attempt at all is made to justify this unilateral allocation.

16. Again, looking at the other side, the plaintiff shows clearly, with the support of contemporaneous documents, that the demerit points were incurred by the defendant, and that there was no apparent justification for allocating the responsibility for them to the plaintiff. The defendant does not advance any evidence about this, and it was not addressed by Mr Finley in argument.

17. As to the alleged defects in the plaintiff's work, Mr Taylor's complete evidence on this is "In breach of clauses (5) and (6) of the Supplemental Agreements and pursuant to clause 21 of the Agreements, defects rectification has been estimated at HK$200,000 the supporting for which is now produced." What Mr Taylor says is "the supporting" is a single, self-serving document consisting of one page compiled by the defendant and describing the defects only as "signage and defects" or simply "defects", and giving round figures as "Estimated Costs".

18. Unlike the defendant, the plaintiff deals with this matter as one might expect; by giving particulars and referring to contemporaneous documents. The plaintiff says that the defects were fixed and end-users have confirmed this in writing. The plaintiff has produced a businesslike and detailed contemporaneous list of defects supporting this. Again, there is no evidence from the defendant about this, and, again, Mr Finley did not address the point in his argument.

19. On the matter of the plaintiff's allegation that there was an agreement to pay, Mr Taylor says "the Plaintiff's case itself is based on a number of misapprehensions, inter alia as follows -

(1) All recent negotiations between the parties were conducted on a without prejudice basis;

(2) All attempts at settlement were conditional and these conditions were never fulfilled by the Plaintiff and include for example the expedition of works and rectification of defects as can clearly be seen from the extract inter solicitor correspondence now produced . . ."

20. When one looks behind this irrelevant and obfuscatory flimflam to the correspondence concerned, one sees, as Mr Finley conceded in argument, that there was indeed an agreement. On 23 August 1997, Mr Taylor, on behalf of the defendant, wrote to plaintiff, referring to a telephone conversation between Mr Anthony Man and the plaintiff and saying ". . . we confirm the following agreement in relation to your outstanding account;

1. HK$570,640.41 to be paid by 26 August 1997.

2. HK$570,640.41 to be paid by 5 September 1997, subject to the substantial completion of the defects detailed in our letter . . . dated 21 August 1997."

21. The defendant implemented this agreement by making the payment due on 26 August 1997.

22. Although Mr Taylor refers to "conditions", he makes no attempt to say whether or not the "conditions" were met. The plaintiff says they were, and, to back this up, has produced a document purporting to be signed by the defendant saying "Received from Jim's Decoration Engineering Co. the list of defects which has been rectified and endorsed by the NGO Users of the following defects before Aug 28, 1997:" There is no evidence from the defendant about this, and Mr Finley made no effort to deal with it in argument.

23. What is also significant about this agreement by the defendant to pay is that it did so at all, if it is true that the plaintiff owed the defendant well over $2 million. The defendant does not seek to explain this. Nor did Mr Finley devote any attention to seeking to overcome this difficulty.

24. Indeed, Mr Finley made little effort to overcome any of the defendant's difficulties in this matter; all he did was to repeat several times that all the defendant had to do was to show an arguable defence and that the plaintiff had not shown that the defence was frivolous or practically moonshine. Of course, it is so that the defendant only has to show an arguable defence, but it is not so, as Mr Finley suggested at one stage, that the court only has to look at the volume of papers and make a perfunctory decision that the case is not one that is suitable for Order 14. In these cases, the plaintiff is entitled to expect the court to examine the matter carefully. Having done so, if the court concludes that the defendant has no case that is fit for trial, justice requires that the plaintiff is not kept out of its money because a defendant raises points that evaporate under the light of objective scrutiny. This, I find, is so in the case before me. The defendant has sought to raise defences in the briefest, most casual manner. The plaintiff has knocked these defences firmly and effectively on the head. The defendant has no answer to the points he makes.

25. In the result, the applications succeed. I grant judgment in favour of the plaintiff in the sums of $570,640.41 and $1,036,182.04.

26. I know of no reason why the plaintiff should not have his costs. I make an order nisi that the defendant pay the plaintiff's costs in both matters.