HANISON CONSTRUCTION CO LTD v. DIAMOND TERM LTD

HCA 4723/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4723 OF 2003

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J U D G M E N T

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1. There are 2 Summonses dated 19 February 2004 before me. In one ("the Stay Summons") the Plaintiff seeks to stay the Defendant's Counterclaim to arbitration pursuant to Arbitration Ordinance (Cap. 341) s. 6. In the other ("the Summary Judgment Summons") the Plaintiff seeks summary judgment in the sum of $1,213,860 ("Sum X").

2. The Incorporated Owners of Wylie Court as Employer entered into the Main Contract with the Plaintiff as Main Contractor. The Plaintiff sub-contracted part of the works to the Defendant.

3. The Stay Summons is based on Main Contract cl. 35 which provided that:-

"in case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Main Contractor, either during the progress or after the completion or abandonment of the Works, as to the construction of this Contract or as to any other matter or thing of whatsoever nature arising thereunder or in connection therewith ...., then such dispute or difference shall be and is hereby referred to the arbitration and final decision of a person to be agreed between the parties..."

4. The sub-contract is contained in a letter ("the Letter") dated 16 January 2003 from the Plaintiff to the Defendant. Cl. 6 of the Letter provided that the Defendant:-

"shall deem to have full knowledge of the provisions of the Main contract related to the Sub-contract works and such provisions are deem to be conditions of this Sub-contract except otherwise stated. Copy of the Main Contract documents other than the detailed prices therein are available for inspection in our Office during office hours."

5. Mr Lo (appearing for the Plaintiff) argues that Main Contract cl. 35 was incorporated into the sub-contract by reason of the Letter cl. 6.

6. I disagree. Plainly Letter cl. 6 only incorporated those terms of the Main Contract which are "related to the Sub-contract works". Main Contract cl. 35 expressly limits itself to providing for arbitration between the Employer (or Architect) and the Main Contractor. Accordingly, it is not specifically related to the sub-contract works and was not incorporated into the sub-contract. The most that can be said in the Plaintiff's favour is that there is an ambiguity in the ambit of Letter cl. 6. However, that ambiguity arising out of a letter written by the Plaintiff, it must be construed against the Plaintiff as the "proferens".

7. No arbitration agreement having been imported into the sub-contract as evidenced by the Letter, the Stay Summons is dismissed.

8. As for the Summary Judgment Summons, the Defendant does not dispute that it was liable for Sum X. Sum X was the total of the amounts which the Plaintiff paid to employees of the Defendant and its sub-contractors. The amounts were paid in part pursuant to the Plaintiff's obligations under Employment Ordinance (Cap. 57) ss. 43C and 43D and in part pursuant to arrangements agreed with the Defendant as evidenced by 2 Chinese Memoranda.

9. The Defendant, however, says that the Plaintiff has already set-off Sum X against interim payments due to the Defendant under Interim Payment Certificates Nos. 6 and 7. In any event, the Defendant says it has claims against the Plaintiff arising out of sums due and owing in respect of its work for the Plaintiff under the sub-contract and out of the wrongful termination of the sub-contract by the Plaintiff. The Defendant argues that it is entitled to set off these sums against the Plaintiff's claims. The Plaintiff disputes this.

10. I do not see that I can resolve the matters in difference between the parties on affidavit evidence alone. For example, whether or not the Interim Payment certificates were intended and agreed to cover the Defendant's obligations in respect of Sum X as the Defendant claims seems to me to be an issue requiring cross-examination. I am not persuaded by Mr Lo's argument that the Plaintiff is entitled to an immediate payment on the basis of the 2 Chinese Memoranda.

11. The Plaintiff says that its claims arise out of matters extraneous to the sub-contract and there can be no set-off as a result. These extraneous matters are the Employment Ordinance and the 2 Chinese Memoranda. I disagree with the Plaintiff. It seems to me that the obligation to pay under the Employment Ordinance and the arrangements evidenced by the 2 Chinese Memoranda arose as a direct consequence of the sub-contract relationship between the Plaintiff and the Defendant. In my judgment, all matters in difference essentially arise out of the same subject matter and are closely connected. Therefore, at the very least, equitable set-off must be arguable as a defence. Obviously, insofar as sums counterclaimed are liquidated, legal set-off would also be a permissible defence. I am fortified in my view by reference to Employment Ordinance s. 43F which permits a principal contractor to set off amounts paid by him under s. 43C against payments due from a relevant sub-contractor. That suggests to me that liability under the Employment Ordinance for wages paid by the Plaintiff cannot be divorced from a consideration of whether set-off has or has not been effected in the manner alleged by the Defendant.

12. Mr Lo submitted that, the Plaintiff having paid employees pursuant to statutory obligation, it would be unjust for the Plaintiff to be kept waiting for reimbursement. In such case, Mr Lo suggested, equity should lean against a right of set-off. I am, however, unable to determine the rights or wrongs of the parties' positions in a summary hearing. For example, it might equally be said that it would be unjust to the Defendant to pay now what was already taken into account by Interim Payment Certificates Nos. 6 and 7. Alternatively, the Defendant may say that it would be wrong for the Defendant now to be made to pay the Plaintiff's claim when, if the Defendant is right, the Plaintiff is the net debtor.

13. The Summary Judgment Summons is accordingly dismissed. I will now hear counsel on costs.