HONG KONG HOUSING SOCIETY v. HING LEE CONSTRUCTION CO. LTD.

1998, No. A4745

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. The Plaintiff contracted with the Defendants to construct a number of housing units on the Kai Tak Estate in May 1995. The original contractual completion date was November 1996. That has long been overtaken by events.

2. There has been a dispute over various aspects of the contract. These came to a head earlier this year. On the 3rd March the Architect served a default notice upon the Defendant, under clause 25(1)(b) of the Conditions of Contract for failure to "proceed regularly and diligently" with the contract works. The notice set out some detail of the complaints in respect of the slow down in work since October 1997. Poor labour supply for specialist work was detailed, and failure to pay sub-contractors was highlighted. The threat of termination of the contract if the default was continued for 14 days was clearly stated.

3. The Architect issued a Certificate of Non-completion in respect of Stages B and C (which should have been completed in March 1997 and October 1997 respectively) on the 19th March. This claimed the plaintiffs were entitled to damages.

4. By letter dated the 23rd March 1998 the Plaintiffs gave notice of termination of the contract under clause 25(1) and required the Defendants to vacate the site immediately as it proposed to re-enter the site. There had been antecedent correspondence between the parties and their respective advisers.

5. Mr. Liao says that the notice of default and termination were issued on a whim, were not "bona fides" and were vexatious and unreasonable. He argued that there is no evidence to support the merits of the claim and that accordingly I should hold that there was no justification for their issue. I do not consider that there is any basis for his contention. There is evidence in the correspondence from the Architect which I do not need to examine in detail and which does not support any suggestion of "mala fides'. There is clearly an issue between the parties and this will be resolved in the arbitration proceedings, the Defendant having issued notice of arbitration pursuant to the clause in the contract, clause 35 of which provides for the resolution of any dispute as to the certificates or notices from the Architect. That is not for me to decide on a cursory view of the affidavits.

6. The reaction of the Defendant to the notice was to effect a "lock-in/lock-out" on the site, as if the notice had no effect in law.

7. I have no doubt that the Plaintiffs intended to terminate the contract in the light of past performance by the Defendants. In view of the commercial considerations involved, they will not in my view, have acted capriciously. The contents of Mr. Law Chun Yu's affirmation satisfies me as to that. They also want occupation of the site as soon as possible, which is entirely reasonable in the circumstances. The Defendants' reaction was to obstruct them in order to try and force them to continue with the contract. I will revert to this situation shortly. It is of note that the Defendants issued proceedings in the High Court on the 16th March, as if anticipating termination of the contract claiming in effect a right to continue with the contract. No further steps have been taken in relation to those proceedings.

8. By refusing to move off-site and excluding the Plaintiff from the site, the Defendants were seeking to exert leverage to their advantage. The actions of their subcontractors who entered the Plaintiffs' office premises were to exert similar pressure, at the very least, by their presence. Although it would be unwise to assert that such actions can never be legal or justified, I cannot conceive of a situation in which such conduct would be regarded as within a party's contractual rights.

9. Mr. Liao, in furthering the balance of convenience argument stressed the Defendants' obligations, reputation and potential financial loss as outweighing any inconvenience to the Plaintiffs. This does not appear to me to be a valid argument. The Plaintiff has to enter into a contract to complete the work. It is working to a fairly strict timetable. The position adopted by the Defendants obstructs this. It is also contended that by ending the contract with the Defendants the Plaintiffs are making difficulties for themselves. They may be. That is a matter for their judgment and energy. What is clear is that every day the Defendants remain in occupation, aggravates the Plaintiffs' position. It is conduct that is not to be condoned. Quite apart from the issue of balance of convenience as between the parties, public interest demands that a party should not benefit from its refusal to accept the legitimate form of exercise of a right to terminate a contract, when there is in any event in existence an agreement as to how disputes arising should be resolved. Intimidatory conduct and postures are not part of the civilised scene.

10. Finally Mr. Liao relied upon a number of cases including NWL v. Wood [1979] 1 W.L.R. 1294. The circumstances of that case are in no way apposite to the position I am considering, nor does it seek to set out a principle governing cases of this nature. Similarly Lansing Linde v. Kerr [1991] 1 W.L.R. 251 which was concerned with an injunction to restrain a breach of a covenant in a contract of service does not assist. Trial of the issue could not take place before the expiration of the period in the covenant and so it was necessary to consider the prospects of the Plaintiff's success at trial. Accordingly an injunction was refused. This picture was a far cry from that presented to me whatever the issues between the parties.

11. An examination of the decision in what has come to be known as the American Cyanamid case makes it clear what principle I should adopt and its application to the circumstances of this case is patently clear. There is beyond question a serious issue to be tried. I do not need to examine the Plaintiff's case in respect of the contractual dispute any further. Whilst I would not presume to suggest that the granting of the injunctive relief to the Plaintiffs is beyond challenge, it would in my view do incalculable harm to the Plaintiff if it were not to be granted. The potential harm to the Defendants for which Mr. Liao has tried to argue is, if it exists at all, as Mr. Tong has set out. The ending of the contract has created that. If the Defendant were to succeed in the arbitration, all will be restored; if it does not, it has only itself to blame, and the consequences are matters of commercial reality.

12. A court would be neglecting reality and fairness if it accepted an argument which sought to achieve for a party, leverage in a civil dispute, based upon obstruction, occupation and exclusion which had the result, and probably the intended result, of forcing a wronged party to a contract, to continue or renew the contract with the occupying party in whom it had no confidence with the possible consequence of further financial loss.

13. Accordingly I grant the relief sought to the Plaintiff. In relation to the question of costs I am also satisfied that it should not be the common order of costs in the cause. The Defendants have no justification for their action. It was not necessary to the merits of their claim in the contractual dispute. It was conduct of the nature I have already described. The Plaintiffs are to have their costs in any event.

(Conrad Seagroatt)

Judge of the High Court