WING LEE ENGINEERING & TECHNICAL SERVICES LTD v. JOHNSON CONTROLS HONG KONG LTD

HCCT 91/2004

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 91 OF 2004

(FORMERLY HCA 3381/2003 AND HCA 2318/2004)

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J U D G M E N T

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I. Introduction

1.  I do not think that this is an appropriate case for partial judgment.

2.  Given this matter must go to trial, the less said by me on the merits the better.  But I should briefly explain why I do not think that I can summarily decide Wing Lee's claim for $453,335.65 (Sum Z).

3.  As the heading shows, this action is a consolidation of HCA 3381 of 2003 and HCA 2318 of 2004.

4.  In this consolidated action, Wing Lee advances several discrete claims.  One of them is for payment of outstanding certified sums.  The total certified amount is $1,643,385.65 (Sum X).  Sum Z has been derived by deducting Johnson Control's counterclaim for $1,190,050 (Sum Y) from Sum X.

5.  Johnson Control alleges a right to set-off of a further amount (Sum A) against Wing Lee's claims.  According to Johnson Control, Sum A is the amount by which Johnson Control has paid Wing Lee on invoices tendered but not yet certified in connection with the Hong Kong Polytechnic University project.  The amounts eventually certified on the relevant invoices may be more or less than the monies paid.

6.  Johnson Control in essence claims that, pending certification of the relevant invoices, Wing Lee holds Sum A on general account for Johnson Control.  This means that Johnson Control is free to attribute all or part of Sum A towards the payment of any claim by Wing Lee.  If Johnson Control is correct, Sum A would more than extinguish Sum Z.

7.  Mr. Ma (appearing for Wing Lee) says that it is not open to Johnson Control to set-off Sum A.  The question is whether Mr. Ma is right.

II. Background

8.  Wing Lee accepts that Johnson Control advanced Sum A to Wing Lee on the relevant invoices and that those remain uncertified.  Wing Lee's case is that Sum A is only to be set off against certified amounts payable on the relevant invoices.  According to Wing Lee, Sum A cannot be set off against amounts (such as Sum Z) due otherwise than on the relevant invoices.

9.  Sum X comprises the combination of amounts claimed in HCA 3381 and HCA 2381.  Wing Lee previously applied for summary judgment in relation to part of Sum X in HCA 3381, before that action was consolidated with HCA 2318.  In the course of the summary application, Master Hui said that he agreed with Wing Lee's case on Sum A.  Master Hui thought that Johnson Control was not entitled to set-off Sum A.

10.  Nonetheless, Master Hui effectively gave unconditional leave to defend against Wing Lee's claim on part of Sum X.  Leave was granted on the basis that Johnson Control had a counterclaim for Sum Y and Sum Y was greater than that part of Sum X being claimed in HCA 3381.  Master Hui merely imposed a requirement that Johnson Control withdraw a separate action (HCA 1733 of 2003) for Sum Y.  The intention appears to have been that Johnson Control's claim for Sum Y could then be tried as a counterclaim to HCA 3381, rather than as a separate action.

11.  The present consolidated action has since been transferred to the Construction and Arbitration List.  Given that the amount claimed in HCA 3381 has now been combined with the amount claimed in HCA 2318 to make Sum X and given that Sum X is in excess of Sum Y, Wing Lee now applies for summary judgment on the balance (Sum Z).

III. Discussion

12.  Johnson Control argues that it is entitled to set off Sum A against Sum Z.  Johnson Control alleges an entitlement to dictate how monies advanced on the relevant invoices can be appropriated.

13.  Mr. Ma says that such argument is effectively a recycling of Johnson Control's submission on Sum A before Master Hui.  Since Master Hui rejected that submission and since there has not been an appeal against that decision, Mr. Ma reasons that Johnson Control is now estopped from raising the recycled argument.  There is (Mr. Ma submits) res judicata.

14.  I disagree for 3 reasons.

15.  First, subject only to the withdrawal of HCA 1733, Master Hui gave unconditional leave to defend in HCA 3381.  He did not impose a condition restricting the arguments to be deployed by Johnson Control.  In particular, he did not impose a condition preventing Johnson Control from advancing arguments on the setting-off Sum A at trial.

16.  Consequently, I find it hard to see that there has been res judicata.  The Court must be cautious in holding that an interlocutory application (such as an Order 14 application where unconditional leave has been granted) has given rise to res judicata.

17.  The mere fact that Master Hui expressed a view on a lack of merit in Johnson Control's Sum A submissions, does not mean that he was making any definitive factual finding on the nature of Sum A.  I do not see how he could have done that on affidavits alone.  One party alleges an understanding that Sum A could only be used in a particular way.  The other party says the opposite.  Trial is necessary to determine which faction is correct.

18.  Second, even if I were wrong in my first ground, there is force in the submission of Mr. Wong (for Johnson Control) that the present application is akin to an appeal against Master Hui's decision.  Since an appeal to a first instance judge from a Master would be by way of a re-hearing, there would be no bar to Johnson Control re-hashing its Sum A arguments before me.

19.  Following Master Hui's decision and before consolidation, there would have been little point in Johnson Control appealing to the judge.  This is because, once HCA 1733 was withdrawn, Johnson Control had unconditional leave to defend in HCA 3381.

20.  Indeed, before Master Hui, there was little point in arguing over the characterisation of Sum A (that is, whether or not could be appropriated by Johnson Control to any claim by Wing Lee).  This is because Sum Y more than offset the amount claimed by Wing Lee in HCA 3381.  The exact characterisation of Sum A was not truly a relevant consideration.  Master Hui’s views on Sum A would in essence be little more than obiter dicta. 

21.  It is only because of the combination of HCA 3381 and HCA 2318 that Wing Lee is able to achieve a Sum X greater than Sum Y and bring a new application for partial judgment on Sum Z.  In other words, consolidation and the listing of this case in the Construction List, constitute a new circumstance.  The precise characterisation of Sum A has only now as a result become crucial.

22.  I believe that it would be unjust to hold that Johnson Control is barred by Master Hui's view in the limited circumstances of HCA 3381 from advancing a case on the characterisation of Sum A in this new situation.

23.  Mr. Ma has suggested that the withdrawal of HCA 1733 by Johnson Control amounted to an election only to argue a claim based on Sum Y.  Mr. Ma submits that, but for Johnson Control’s agreement to withdraw HCA 1733, Master Hui would have granted summary judgment in Wing Lee's favour in HCA 3381.

24.  I do not find Mr. Ma's argument convincing.  Technically, I do not see that there was any need to withdraw HCA 1733.  It could simply have been consolidated as a counterclaim to HCA 3381.  Further, it is common in one action (say Action M) to plead that a defendant will set off amounts due in respect of his Action N in extinction or diminution of any amount found to be due in Action M.  I am unable to infer an election by Johnson Control from its acceptance of Master Hui's procedural requirement.

25.  In any event, if (as I think) this application is either a new circumstance or (alternatively) an appeal in all but name against Master Hui, no "election" before Master Hui can be binding in a re-hearing before me.

26.  Third, unlike Master Hui, I do not believe that Johnson Control's case on Sum A whether as advanced in HCA 3381 or before me, can be so readily dismissed.  The relevant invoices may be certified for sums which are significantly above or below what Johnson Control has paid.  Pending such certification, I do not see why as a matter of principle Johnson Control should not be able to designate how Sum A is to be used in Wing Lee's hands. 

27.  Wing Lee says that there is an understanding, agreement, or course of dealing that supports its case.  That is denied on affidavit by Johnson Control.  I do not see how the matter can then be determined summarily, in the absence of cross-examination.

28.  Wing Lee says that it is too late for Johnson Control to appropriate Sum A.  Wing Lee says that this is because in accepting Johnson Control’s repudiatory breach and terminating the contract between them, Wing Lee itself appropriated Sum A to the relevant uncertified invoices.

29.  However, this argument assumes that Johnson Control was in repudiatory breach and that the relevant invoices accurately reflect the amount which would have been certified had there been no such breach.  Neither are matters which can be determined summarily.

30.  Wing Lee may be proved right in due course at trial.  Its case may appear strong from the documents exhibited.  But those factors alone would not justify dismissing Johnson Control's defence on Sum A.

IV.     Conclusion

31.  For those reasons, Wing Lee's application for partial judgment is refused.  I shall now hear counsel on costs and consequential orders.

32.  Although I have rejected Wing Lee's application, I am sympathetic to its motivations.  The project appears to have concluded in 2003.  But Wing Lee remains unpaid on a significant part of certified sums today in 2005.  Unfortunately, I do not think that summary judgment (partial or otherwise) is an available short cut here.  Instead, I believe that the parties should make every effort to bring this matter to trial as soon as possible.  I am accordingly prepared to give such directions to achieve that outcome as counsel might suggest.