XCHRX HONG KONG SCAFFOLD BUILDING CONTRACTOR CO. LTD. v. ON LEE GENERAL CONTRACTORS LTD.

HCCT 1/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION LIST NO. 1 OF 1998

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D E C I S I O N

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1. This is an application by the Defendant for an order that

(1) the Plaintiff's action herein be dismissed for want of prosecution and that

(2) a barrister formerly acting for the Plaintiff (but who is not now acting for the Plaintiff) be "disallowed to act" as counsel for the Plaintiff.

2. There is also an application by the Plaintiff for leave to amend its Statement of Claim.

3. I shall deal with each application in turn.

Background Facts

4. The Plaintiff is a scaffolding sub-contractor. The Defendant is a building contractor.

5. In September 1990, certain companies entered into an agreement with the Defendant for the Defendant to construct a building at N.K.I.L. 5974.

6. Soon afterwards, on 26 September 1990, the Defendant obtained a quotation from the Plaintiff for scaffolding works for the building project ("the Quotation").

7. On 8 October 1990, the Defendant and the Plaintiff entered into a written agreement for the Plaintiff to provide scaffolding for the building project ("the Agreement") and in November 1990, the Plaintiff commenced scaffolding works.

8. The Agreement referred, amongst other things, to the Quotation. The true construction of the Quotation and the Agreement, and the nature of the agreement made between the parties, are at the crux of the dispute between the Plaintiff and the Defendant.

9. It would appear that under the Agreement, interim payments would be made by the Defendant to the Plaintiff every 15 days. According to the Plaintiff, this was upon the Defendant's site supervisor's issue of a certificate of compliance to the Plaintiff to prove that work had been rendered by the Plaintiff at the Defendant's request to its satisfaction. According to the Defendant, interim payments were to be in accordance with work progress certified by the Defendant's site foreman, but subject to verification and approval by the Defendant's head office.

10. It appears to be common ground that in relation to the sums approved, 10% would be retained. Half of these retained monies would be released to the Plaintiff when the scaffolding was removed from the site, and the other half would be released to the Plaintiff after 1 month - however, according to the Plaintiff, this was 1 month after services rendered for the Site were completed and inspected; but according to the Defendant, this was 1 month after satisfactory completion of the main construction.

11. About 2 years after scaffolding work commenced, on 5 December 1992, the scaffolding was removed.

12. In January 1996, the parties started correspondence on amounts said to be outstanding. Certain payments were made by the Defendant to the Plaintiff in February and March 1996.

(1) APPLICATION TO DISMISS ACTION

Steps in proceedings

13. In August 1996, the Plaintiff's solicitors sent a letter before action. In September 1996, the Plaintiff lodged a claim in the Small Claims Tribunal, followed in October 1996 by a claim in the District Court. These are no longer extant.

14. On 16 April 1997, the writ herein was issued. It was the Plaintiff's case (prior to its proposed amendment) that the Defendant is liable to pay it $147,052.85, calculated as follows:-

(a) Work done for an "agreed price" under the written agreement incorporating the quotation	$610,000.00
(b) Work done for additional scaffolding services at agreed unit prices and calculated according to the quantity of services provided	$189,967.00
(c) Variation works under oral agreements	$ 32,552.40
(d) Variation works under a written agreement dated 18 December 1991	$ 9,240.00
		$841,759.40
Less:
Amount paid by Defendant		$694,706.55
Total allegedly owing by Defendant :		$147,052.85

15. The Defendant's case is that the Agreement was a lump sum contract, and thus was not subject to recalculation irrespective of the "as-built" quantities of work even if different from earlier estimates. Thus there was no additional work which it had to pay for.

16. Further the Plaintiff was not entitled to be paid for variations, because variation cost was not payable unless the drawings/sketches of the specifications had been varied, and the Plaintiff had not substantiated any such variations.

17. Indeed, the Defendant says that by having paid the Plaintiff $694,981.23 (an amount slightly different from the amount the Plaintiff says the Defendant had paid it), it had overpaid the Plaintiff in error by some $110,798.23.

18. Further, the Defendant asserts a counterclaim on the basis that there had been delay by the Plaintiff, which the Defendant says could lead to liquidated damages of some $3m. which it might have to pay to the developers.

19. Pleadings were filed within a normal length of time, and were closed in July 1997. The Defendant requested Further and Better Particulars from the Plaintiff in July 1997 but this was not answered. However the Defendant did not make the Request the subject of a summons.

20. Meanwhile, in September 1997, the Plaintiff issued Order 14 proceedings, which culminated in a judgment in March 1998 from Findlay, J. granting the Defendant unconditional leave to defend.

21. No further pleadings were required, the Defendant having filed its Defence and Counterclaim in May 1997. However, the usual next step in the progress of litigation, i.e. discovery, did not take place, nor did the Plaintiff issue a summons for directions within the time provided by the rules after close of pleadings.

22. On 1 March 1999, about 1 month short of 1 year from Findlay, J.'s order on the Order 14 Summons, the Plaintiff's solicitors wrote to the Defendant enclosing a proposed Amended Statement of Claim.

23. This proposed amendment deleted references to an "agreed price" and asserted that the contract price of $610,000 had been reached at estimated quantities. Re-measurement of work was intended, and the contract price of $610,000 would be adjusted if the final "as-built" quantities differed from the estimated quantities.

24. The amount claimed remained the same, the only difference being that instead of claiming (a) an "agreed price" of $610,000 and (c) variation works under oral agreements of $32,552.40, it is now alleged that the total contract price, adjusted after re-measurement, was $642,552.40, i.e. the sum of those figures.

25. On 8 March 1999, the Defendant issued the present summons under O.25, presumably rule 1(4), and the inherent jurisdiction to dismiss the action for want of prosecution.

Principles to be applied

26. The principles to be applied in an application to dismiss an action for want of prosecution are well-established. This is not a case of contumelious default. The Defendant's case here is that there has been inordinate and inexcusable delay in the prosecution of the action

27. When a defendant seeks an order form the Court to dismiss an action for want of prosecution, the burden is upon him to prove (a) that there has been inordinate and inexcusable delay by the plaintiff and (b) that such delay would give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action, or is such as is likely to cause or have caused serious prejudice to the defendant.

28. The relevant delay must of course be post-writ, because the principle affects delays in the prosecution of an action (Department of Transport v Chris Smaller (Transport) Ltd [1989] 1 All ER 898, H.L.) However it is established law that the court takes into account whether the plaintiff had already waited close to the expiry of the limitation period before issuing proceedings. In relation to the first limb (i.e. whether the delay was inordinate), the later a plaintiff starts his action, the more diligent he must be, and thus, less excusable any delays once he has started it. In relation to the second limb, a lesser degree of delay may cause serious prejudice to a defendant when substantial time has already elapsed before the issue of the writ (Birkett v James [1978] A.C. 297, H.L.)

29. There has been some argument in these proceedings as to when the limitation period expired. The Defendant says that at the latest, it expired in August 1998. It might also be argued that it expired in January 1999, being 6 years after January 1993, because there were ongoing works from 1990 to 1992 and under the Agreement, the balance of retained funds should be paid by the Defendant to the Plaintiff 1 month after completion of the works.

30. In any event, whether it was August 1998 or January 1999 is not that important for present purposes. The writ herein having been issued in 1997, this was not, in my view, a case where the Plaintiff had taken the full advantage of the limitation period before issuing proceedings and thus ought to be adversely affected in the manner discussed above.

Delay inordinate and inexcusable

31. Having said that, the delay relied upon is 11 months, between the end of March 1998 when Findlay J. gave the Defendant unconditional leave to defend and 1 March 1999 when the Plaintiff's solicitors wrote to the Defendant enclosing a draft Amended Statement of Claim asking for its consent for leave.

32. As I have said, no discovery was done within those 11 months and no summons for directions was filed. It would appear that nothing passed between the parties - it is not suggested that there were any negotiations, open or without prejudice. A period of 11 months, ending with the Plaintiff contacting the Defendant for the further progress of the action, is not the worst case of delay. However, one must measure the period of delay against the work that was required, and in my judgment, the delay of 11 months, when the only work required was discovery and a summons for directions, was inordinate.

33. I also find that it was inexcusable. The excuse given by the Plaintiff was that they changed solicitors in July 1998, and time was taken for counsel to draft an amendment to the Statement of Claim. Even taking that into account, however, one must bear in mind the relative simplicity of discovery and a summons for directions. An 11-month delay for these relatively simple steps is, in my judgment, inexcusable, particularly since the more important materials would already have been marshalled for the Order 14 proceedings.

Evidence of prejudice

34. The burden is however on the Defendant to prove that such delay would give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action, or is such as is likely to cause or have caused serious prejudice to it.

35. The Defendant has filed a number of affirmations by its director Mr Cheung Chun Ning, who also represented it at the hearing before me. It has been submitted on its behalf that it has been unable to locate some witnesses, that some witnesses who are available have fading memories, and that some documents have been lost.

36. However it is well-established that if an applicant is to succeed in dismissing an action for want of prosecution, it has to show a causal connection between the delay and the prejudice. Lord Diplock held in Birkett v James that to justify dismissal of an action for want of prosecution, some prejudice to the defendant additional to that inevitably flowing from the plaintiff's tardiness in issuing his writ must be shown to have resulted from his subsequent delay in proceeding promptly with the successive steps in the action. The additional prejudice need not be great, but it must be more than minimal (p.809 d-e). Or, in Lord Salmon's words, although a defendant is often seriously prejudiced by a writ being issued long after the cause of action has accrued,"the delay after the issue of the writ must increase the prejudice already suffered by the Defendant in that he must be worse off than he would have been but for that delay" before the action could be dismissed (p.815 e-f).

37. So one considers the evidence filed on behalf of the Defendant to see if there is sufficient evidence that the delay between April 1998 and March 1999 had caused any additional prejudice to the Defendant.

38. The Defendant has alleged that it has not been able to locate some witnesses. A chart of the Defendant's personnel was produced and persons such as the contract manager, quantity surveyors, site foremen and accounting staff were said to have left the Defendant's employ. However there is no evidence when these persons left.

39. If they had left before 1996, then the prejudice suffered by the Defendant in being unable to locate them had not been caused or added to by the delay in 1998-9. If they had left after the Plaintiff's demands in January 1996, then the Defendant (faced with a sub-contractor who was threatening litigation) ought to have obtained full witness statements from them before they left. If the Defendant had not done so, then any detriment in the presentation of the Defendant's case was caused (earlier) by the Defendant's failure to protect its own interests.

40. In Shum Yuen Nim v United Fair Agencies Ltd and others 1990, Civ. App. No. 45, unrep., the Court of Appeal accepted as sound the reasoning of the first instance judge (who refused to dismiss an action for want of prosecution) that any prejudice suffered by the Defendant must arise from the Plaintiff's delay, not the Defendant's own conduct. The prejudice must not be the possibility of some other prejudice that might have arisen even if the Defendant had taken reasonable steps to protect its own interests (p.12).

41. I now deal with the Defendant's evidence that some of its directors had also left, and that their memories are fading. It would appear from the names of the directors that the Defendant was a family company. The Defendant's chart showed that there were now only 2 directors left from the board in 1991-2. One of these 2 directors is Madam Chan Bik Sam, who has been ill since January 1999. However, presumably she would have been in a position to give a witness statement after January 1996 and before January 1999. No evidence has been adduced by the Defendant to show if that has been done or not; and if not, why not.

42. As for the other remaining director, that is Mr Cheung Chun Ning himself, viz. the director who is appearing for the Defendant. He was in fact the Project Manager from April 1991, and he is a professional civil engineer. He has presented the Defendant's case extremely capably and in a well-organized manner. He has stated in the Affirmation in opposition to the Order 14 application that his duty was mainly to monitor the construction progress and sometimes the cost control of various sub-contracts, including the approval of interim payments to subcontractors. His continuity is of obvious benefit to the Defendant.

43. As for the other directors who have since left, they are all family members. According to Mr Cheung's 6th Affirmation, these persons "have recently told the Defendant that they will not testify on behalf of the Defendant as they cannot recall any relevant events over such a long time ago". The same question arises and is not answered - were these persons asked to provide full witness statements in 1996 when the Plaintiff threatened litigation, and if not, why not? I should further add that it does not matter that the Plaintiff was then alleging that the Agreement was of a different nature. Any reasonable person faced with litigation would be expected to fully investigate the transaction giving rise to the litigation, given that the rules of court permit alterations to one's case, and indeed the Defendant was alert to the requirements of detail, and made a request for further and better particulars in July 1997.

44. As for the allegation of missing documents, the Defendant's evidence is by no means consistent. In paragraph of Mr Cheung's Affirmation filed on 8 March 1999, he says that "the Plaintiff's delay (five years) in raising its claims has rendered the Defendant unable to locate some of the relevant files which have either been damaged, lost and/or removed in good faith on the belief that the sub-contract was fully settled without dispute".

45. However, this appears to be inconsistent with the earlier Affirmation he made in opposition to the Order 14 proceedings. There was no allegation of the Defendant being lulled into a false sense of security. The contrary was then emphasized.

46. In his Affirmation filed 6 October 1997, he said that the scaffolding was critical to the completion of the main construction contract the Defendant had entered into with the developers. When the Plaintiff allegedly delayed completion of the scaffolding works, the Defendant was, at the minimum, concerned with the effect of the delay on the main construction contract which contained a liquidated damages clause.

47. Thus the Defendant said it had "all the time been negotiating with the Employer [developers] for a global settlement ... ". It said the developers began to show its intention to apply liquidated damages in late 1995, at which time the Defendant itself also began to prepare assessment of its loss and damage resulting from the Plaintiff's delay in completion.

48. The evidence was thus of a dispute brewing (as between the developers and the Defendant, and as between the Defendant and the Plaintiff), which is inconsistent with the later Affirmation which alleges "the belief that the sub-contract was fully settled without dispute". Indeed even as late as the Order 14 Affirmation, the Defendant was alleging that it was taking the dispute with the developers to arbitration. Apparently this has now been settled.

49. Further the Defendant has alleged that the documents it has lost are "tender drawings, working drawings and relevant documents in respect of the sub-contract" (Cheung, Affirmation filed 8 March 1999). Such an allegation would appear to be inconsistent with the assertion made in the Order 14 proceedings that exhibit "CCN-2" comprised "relevant tender drawings/sketches and work list covered by the Sub-contract".

50. In any event, even if some documents have been lost (and this applies to the other documents referred to by the Defendant e.g. payment assessments and records of interim payments), the issue for present purposes is when they were lost, because what the Defendant is required to prove is additional prejudice during the period of delay. No evidence has been adduced in this regard by the Defendant.

51. In the circumstances set out above, I take the view that in the exercise of my discretion in accordance with the principles discussed above, the Defendant's application to dismiss the action must be rejected.

52. As far as costs are concerned, the normal order would be that costs follow the event, and since the Defendant has failed in the application, it should bear the costs of the application. I would give an order nisi accordingly.

(2) APPLICATION FOR COUNSEL TO BE "DISALLOWED" TO ACT

53. The second application of the Defendant was to "disallow" a particular barrister from acting as counsel for the Plaintiff.

54. The basis of the application is that the barrister was a director of the Plaintiff at the material time. It is therefore contrary to paragraph 58 of the Code of Conduct of the Bar for him to act for the Plaintiff.

55. His acting for the Plaintiff has been the subject of consideration by the Bar Council and he has been censured. In any event, it would appear that after the Defendant's complaint to the Bar Council on 8 March 1999 and before the Bar Council's decision to censure him in May 1999, he was no longer instructed in these proceedings. However, the Defendant has proceeded with the application.

56. I am not persuaded that the Court has jurisdiction to make the sort of order sought. A barrister's actions in breach of his Code of Conduct do not by themselves affect his right of audience before the court.

57. A court of course has a right to supervise its own proceedings, and from time to time, it does so, if necessary, by calling into operation the rigours of contempt proceedings, but a barrister's appearance for a company in circumstances such as these does not appear to me to be within the parameters of the type of conduct that might be regarded as contempt of court.

58. In any event, even if there is such jurisdiction, I do not see any sufficient grounds for its exercise. If a judge becomes aware in the course of a hearing that a breach of the Code of Conduct of this sort may have been committed by counsel, then the proper course would be for the judge to refer the matter to the Bar Council for an inquiry whether disciplinary proceedings should be brought by the Council against the barrister concerned.

59. However, there is no need for me to do so now, because the Bar Council has already been made aware of the matter, and the barrister concerned is not now acting for the Plaintiff.

60. The Defendant's suggestion that he might try to come back into the case at some stage in the future is hypothetical. If that were to happen in the future, then the judge seized of any proceeding at which the barrister concerned appears would no doubt consider if the matter should be referred to the Bar Council again, and make any such order as he thinks fit.

61. Accordingly, I dismiss the summons. However, bearing in mind the peculiar aspects of this matter and the fact that the barrister concerned had been in breach of the Code of Conduct, I think the appropriate order as to costs should be that there be no order as to the costs of this summons and I would make an order nisi accordingly.

(3) APPLICATION TO AMEND STATEMENT OF CLAIM

62. Finally, there is the Plaintiff's application for leave to amend the Statement of Claim. As a matter of "guiding principle", leave should be given for all amendments for the purpose of determining the issues in controversy between the parties, so that the parties and the court would be clear as to what issues fall to be investigated at trial.

63. The Quotation and the Agreement are written, and it would appear that the primary purpose of the proposed amendment is to set out the Plaintiff's fresh interpretation of these documents, to the effect that the nature of the Agreement was not a lump sum contract, but one that allowed for recalculation according to "as-built" quantities.

64. Although this is a different case from the Plaintiff's original pleaded interpretation of the contract, the case remains founded on the two documents, whatever their true meaning.

65. There are no new claims, nor are there any new figures. I see no prejudice that may be suffered by the Defendant as a result of the proposed amendment (other than of course the forensic prejudice that every litigant suffers when his opponent makes an attempt to get his house in order).

66. Accordingly I would give leave to the Plaintiff to amend the Statement of Claim along the lines of the draft annexed to the Summons. I would give the usual order nisi that the costs of and occasioned by the amendment be to the Defendant in any event.

67. As a matter of completeness, I would add that the Defendant would of course be entitled to make any consequential amendments to its Defence and Counterclaim arising from the amendments to the Statement of Claim.