HING WAI MACHINERY ENGINEERING CO v. 中國冶金科工集團公司 also known as CHINA METALLURGICAL GROUP CORPORATION

HCA 2784/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2784 OF 2006

______________________

______________________

______________________

D E C I S I O N

______________________

1.  This is an appeal from a decision of Master Yu.  The defendant had failed to file a Notice of Intention to Defend.  A regular default judgment was thus entered against it on 6 January 2007 for a sum of $4,629,558.47.  It then applied to set aside the default judgment.  On 26 June 2007 Master Yu amended the judgment to $3,787,839.89.  He further ordered that on condition of the defendant paying this sum into court within 28 days, the amended judgment be set aside.

2.  The defendant launched an appeal against this order.  It also applied to the Registrar for a stay of the order.  The Registrar granted the application on 24 July 2007.  I set aside the Registrar’s order on 9 August 2007.  However, the time for payment under Master Yu’s order had already expired and the judgment could not be set aside by payment in.  I also regarded the amount required by Master Yu to be paid into court as too high.  I therefore made a further order that if the defendant should pay into court $2.1 million within 21 days from 9 August, the execution of the amended judgment be stayed.  That sum was duly paid in and the execution of the amended judgment stayed. 

3.  I now deal with the defendant’s appeal against Master Yu’s order by way of rehearing.  The defendant seeks to set aside the default judgment unconditionally. 

4.  The plaintiff’s claim is for balance of payment for work done under a subcontract with the defendant.  The subcontract was an actual measurement contract.  The amount to be paid to the plaintiff depended on the quantity of work done.  The works were executed for the government as represented by the Architectural Services Department. 

5.  The appeal was first heard on 21 September 2007.  The defendant produced an expert report shortly before that hearing.  The report confirmed the defendant’s case in toto.  The plaintiff was not informed about this report until it was produced.  The hearing was then adjourned for the plaintiff to procure its own expert report.  In due course the plaintiff produced its expert report and the defendant’s expert also made a supplemental report making some brief replies to the plaintiff’s report.

6.  The original contract price was $5,334,324.67.  The parties agree that the defendant had already paid the plaintiff $4,779,266.11.  The plaintiff claims that it is entitled to a further sum of $3,787,839.89 as per the judgment as amended by Master Yu.  If the plaintiff is right, the original contract sum would have been increased by about 60 per cent to $8,567,106.

7.  The defendant’s expert, in compiling his report, had selected some major items of work and measured them on the latest combined services drawing for external works and the latest construction drawings.  These drawings were issued by the Architectural Services Department to the defendant.  The defendant’s expert also referred to the defendant’s final account summary.  He valued the variation orders, contra charges and daily labour wages as charged by the plaintiff.  He valued the variation works on the basis of the summary of variation orders prepared by the defendant together with some supporting documents, drawings and sketches.  He found that the plaintiff had over-claimed on the measurements of work done, the amount for the variation orders and the daily labour charges.  He also found that the defendant’s claim of contra charges, at $988,013.05, reasonable.  In fact, out of this sum, $941,800 was for reimbursement of materials purchased by the defendant for the plaintiff’s use in the project.  He, on the whole, agreed with the defendant’s assessment of the plaintiff’s entitlement.  The defendant assessed that the plaintiff was only entitled to a further payment of $162,334.13, but there was a counterclaim of over $200,000 for defective works.

8.  The plaintiff’s expert, however, relied on other plans and drawings which appeared to be more up to date.  He said the up to date plans contained changes to the works which were not present in the plans used by the defendant’s expert.  His measurements on these plans showed more work done by the defendant.  He also referred to abortive work which would not appear in the plans. 

9.  There may indeed be some changes and hence additional work that can be shown in the plaintiff’s plans.  However, they cannot explain the substantial increase in the plaintiff’s contractual entitlement.  The changes might have increased or decreased the plaintiff’s entitlement depending on their nature.  There is also very sparse evidence on whether there was indeed abortive work.  The method of valuation of the plaintiff’s expert for the variation orders was different from that of the defendant’s expert and he relied on different documents.  He also adopted a different scale of rates for paying the daily labour.  There is no evidence of whether his scale had been agreed to by the defendant.  He, however, did not comment on the plaintiff’s liability to the contra charges.  He accepted the plaintiff’s instructions on a number of items of claim.  He also applied his expertise to revise his estimates upwards to make them in line with those claimed by the plaintiff.  He concluded that the plaintiff was entitled to its claim as contained in the amended judgment.

10.  The defendant’s expert replied by disputing the claim of the plaintiff’s expert on what are the more accurate or reliable plans to use.  He maintained that he had used the most reliable documents for his assessment as they were issued by the Architectural Services Department.  He therefore did not accept that there were additional works in the later plans produced by the plaintiff.  He also stated the defendant’s case that there was no abortive work. 

11.  Having reviewed the expert reports from both sides, it is difficult to say which expert would have his opinion accepted by the trial judge.  It may well be that each expert is correct on some of the points but not on some other points.  My provisional view is that the defendant can well establish its case at the trial.  I refer to paragraphs 13/9/13 to 13/9/15 of the Hong Kong Civil Procedure 2008.  In the premises I would allow the appeal, set aside the order of Master Yu as well as the default judgment.  I also order payment out of the sum of $2.1 million with interest accrued to the defendant’s solicitors.  I will now hear parties on costs.

(Discussion on costs)

12.  The defendant will have 14 days to file and serve its defence and counterclaim and the plaintiff will have 14 days to file and serve its reply and defence to counterclaim.  The action is transferred to the Construction and Arbitration list. 

13.  On the question of costs, Master Yu’s order of costs will remain.  The defendant also has to pay the plaintiff the costs for the application for stay before the Registrar and the appeal against the Registrar’s order.  The defendant also has to pay the plaintiff the costs of the appeal up to 10 September 2007.  The plaintiff has to pay the defendant the costs of the appeal from 11 September 2007 onwards and also the costs for engaging the defendant’s expert, which were incurred before 11 September 2007. 

14.  In coming to this decision on costs I have taken into account of the fact that the judgment is a regular one.  There was little evidence before Master Yu that could advance the defendant’s case and there were two offers from the plaintiff for setting aside the judgment prior to the hearing before Master Yu.

15.  I also certificate it fit for counsel to attend the hearings before Master Yu and the Registrar.