XCHRX KAILEY ENGINEERING CO. (HK) LTD. v. YAU LEE CONSTRUCTION CO. LTD.

HCCT 74/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 74 OF 1999

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J U D G E M E N T

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This is an application by summons for finial judgment under Order 14 for $2,751,953.91 together with interest and costs. However, when the Plaintiff's case was actually presented, the claim is for $2,338,535.18.

2. It is common ground that the Plaintiff and the Defendant are bound by a contract ("The Sub-Contract") under which the Plaintiff performed heating, ventilation and air-conditioning plant installation work as sub-contractor for the Defendant who was the main contractor for the refurbishment and improvement of the Kwong Wah Hospital in Kowloon. As a result of variations the details of which are irrelevant for present purposes the Plaintiff undertook more work under the Sub-Contract and the contract sum was increased to over $60 million. The bulk of the contract sum has been paid. By the action herein, the Plaintiff seeks to recover the outstanding amount under the Sub-Contract. The accounting differences may be seen from the summary below taken from the written skeleton arguments of counsel for the Defendant:-

1.	Total contract sum after adjustments	$66,284,209.50	$63,256,343.18
2.	Contra charges	($405,069.50)	($802,892.70)
3.	Final contract sum	$65,871,146.00	$62,453,450.48
4.	Amount received by the Plaintiff	($60,512,738.50)	($60,697,445.53)
5.	Unpaid balance	$5,366,401.50	$1,756,004.95

3. It would, therefore, appear that even if the Defendant succeeds on the contra charges and amounts received by the Plaintiff, there is still $1,756,004.95 due to the Plaintiff. This amount forms one component of the $2,338,535.18 being sought by the Plaintiff by way of summary judgment, the other two components again relate to disputed contra charges and amount already received by the Plaintiff. The $1,756,004.95 being the lowest common factor, I would have thought that it is the least the Plaintiff should be entitled to under the Order 14 summons. But it is not so simple.

4. The Defendant belatedly filed an affirmation by one Mr. Luk ("the Luk Affirmation") with massive supporting exhibits to show that there are three items of outstanding work under the Sub-Contract for which the Defendant is entitled to claim damages to the tune of nearly $1.7 million against the Plaintiff. If this evidence is admitted and accepted as showing a viable defence, obviously the Order 14 summons must fail. After hearing arguments, I decided to admit the Luk Affirmation as evidence but ordered the Defendant to pay costs for obtaining leave to introduce such evidence. The focus of the matter is then turned to the force and effect of this evidence.

5. According to the Luk Affirmation, numerous aspects of the work performed by the Plaintiff under the Sub-Contract are unsatisfactory. In particular, the Plaintiff failed to do:-

(a) rectification, re-testing and commissioning of the luminar flow in the operation theatres;

(b) testing and commissioning of the humidifiers in the operation theatres;

(c) chill water circuit balancing.

As a result, the Defendant will have to follow-up and that would cost in total $1.7 million approximately.

6. Mr. Shaw for the Plaintiff reminded me of the case of Bhagwandas Kewaleram Murjani and Others v. Bank of India [1990] 1 HKLR 586. I think it is only necessary to refer to the headnotes of the case report for guidance on the approach I am bound to take in the present instance:-

1. The mere assertion of fact in an affidavit does not necessarily give leave to defend. O. 14, r. 3 puts an onus upon a defendant. It might be described as a threshold onus to show that there is a triable issue in the case. That onus can only be satisfied on the balance of probabilities. Dictum of Ackner, L.J. in Banque de Paris v. de Naray [1984] 1 Lloyd's Rep 21 followed.

2. The Court will test the credibility of an affidavit asserting a triable issue against the conduct of the defendant and contemporary documents.

3. A useful and helpful description of the threshold onus is contained in the decision of Beldam, J. in Bremar Holdings Ltd. v. de Roth (The Times Newspaper) 22nd February 1984:

"... the plaintiffs' documentary evidence cast such doubt upon the validity of the defendant's documents and affidavit statements in support of the third suggested defence, that his Lordship found the affidavit incredible, or almost incredible, by reason of its inherent implausibility or inconsistency with the documents.

Even had his Lordship not been of the opinion that no defence was disclosed, he would have held that the affidavit statements were not sufficiently credible to raise an issue or question in dispute which ought to be tried."

7. Mr. Shaw then went on to point out the following incontrovertible facts gleaned from the documents disclosed by the Defendant:-

(1) The work to be done by the Plaintiff pursuant to the Sub-Contract including variations were divided into 3 parts - Sections I, II and III and completed in 1995, 1996 and 1997 respectively.

(2) The Architectural Services Department, responsible for the project on behalf of the Hospital, has issued Certificates of Completion covering all stages of the project and released the surety bonds binding the contractors to satisfactory performance.

(3) The Hospital has paid up all the contract sums to the Defendant as main contractor and even released the final moiety of the retention money by the middle of this year.

(4) The Defendant has rendered final contract accounts to the Plaintiff in which there is no mention of any of the major outstanding work referred to in the Luk Affirmation.

(5) The Defence filed and served on behalf of the Defendant in this action raises no issue on the alleged outstanding work. The only notable defence raised was that of set-off which counsel for the Defendant has confirmed is abandoned. And, there is yet no properly pleaded counterclaim for damages for outstanding or unsatisfactory work.

(6) More importantly, the Plaintiff's statement of Claim has pleaded that the sub-contract works were completed during the 4th quarter of 1997. The Defence filed and served quite simply admitted that this is the case.

(7) When the Plaintiff requested Further and Better Particulars of the Defence, the Defendant answered that the materials cost of rectifying the luminar flow for the operation theatre would be $36,200. No particulars was given on labour costs or the total costs. The Luk Affirmation, in the face of the Order 14 summons, exhibited a quotation from an engineering firm that puts the rectification, testing and commissioning charges, including costs of materials and labour, at $360,000. The main body of the Luk Affirmation says, on the basis of this quotation, that the total costs should be $500,000 including 10% administrative costs of the Defendant.

8. The points made by Mr. Shaw are that first, if the Plaintiff has left work to the value of $1.7 million undone, the independent authority - the Architectural Services Department and the owner - the Hospital would not have acted as if the project has been satisfactorily completed. Certificates of Completion would not be issued, Surety Bonds would not be returned, the final contract sum would not be paid and the retention monies as security would not be released. Secondly, if there are glaring and costly defects, the Defendant would have pleaded them unambiguously at the first opportunity in its Defence instead of initially replying on the defence of set-off for amounts due under some other contract which is the subject of litigation in HCCT 22 of 1999. Thirdly, the Luk Affirmation shows clear attempt to grossly inflate the costs and charges to complete one item of alleged outstanding work to reach a figure that would effectively wipe out the otherwise indisputable unpaid balance of $1,756,004.95.

9. Applying the test adopted by the Court of Appeal, I have no difficulty at all to find that the Luk Affirmation is incredible, the claim or counterclaim for damages by the Defendant is implausible and the assertion of triable issues on outstanding work is inconsistent with the Defendant's own documents and conduct.

10. Mr. Liu for the Defendant suggested that the claim for damages for outstanding work is based on implied contractual term or Clause 18 of the Sub-Contract. In my view, once the claim or counterclaim has been rejected as incredible, the legal basis for the claim or counterclaim is plainly irrelevant. In any event, Mr. Liu did not elaborate on why, if Clause 18 of the Sub-Contract can be the basis of claim, the court should find it necessarily to imply a contractual term. It is trite law that the court should be extremely slow to imply a term when the situation is covered by an express term of the contract.

11. As to Clause 18 of the Sub-Contract, it reads:-

(1) If the Sub-Contractor shall fail to execute such work of repair, rectification or making good in accordance with the Sub-Contract, the Contractor after giving reasonable notice in writing to the Sub-Contractor may by his own or other workmen do such work as he may consider necessary.

(2) If the work so done by the Contractor is work which the Sub-Contractor was liable to do at his own expense under the Sub-Contract, all costs and charges properly incurred by the Contractor in so doing shall be paid by the Sub-Contractor to the Contractor.

Mr. Shaw contended that the Defendant would be entitled to mount a claim for damages only after giving reasonable notice, after the Plaintiff has refused to comply with the notice and after the Defendant has in fact done the remedial work and incurred costs and charges. None of these conditions has been fulfilled.

12. There is no dispute that the Defendant has not done the work allegedly left behind by the Plaintiff. The reason given by the Defendant is that such work cannot be conveniently done now. It has to wait until some future time when the Hospital schedule a shut down of the operation theatre and other facilities. This being the case, if the allegation of outstanding work is true, the Plaintiff still has the opportunity to do the outstanding work and get payment. In any event, the Defendant cannot claim costs and charge not yet incurred.

13. In a nutshell, I find a transparent attempt on the part of the Defendant to stall payment due. The Plaintiff is immediately entitled to at least $1,756,004.95.

14. As to the issues of contra charges and amount received by the Plaintiff, I see that they are inextricably bound with real factual disputes which cannot be resolved without trial.

15. In the premises, there must be partial judgment for the sum of $1,756,004.95 for the Plaintiff with liberty to the Plaintiff to prosecute its remaining claims and leave to the Defendant to defend on those remaining claims. There is also order nisi that the Defendant pays the Plaintiff's costs of and occasioned by all summonses before me to be taxed if not agreed and to be paid forthwith. The order nisi is to become absolute unless either party applies within 14 day from the day of handing down this judgment for variation of the order nisi.