DRAGAGES ET TRAVAUX PUBLICS (HK) LTD. v. AMERICAN HOME ASSURANCE CO.

CACV 295/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 295 OF 1999

(ON APPEAL FROM HCCT5/1999)

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J U D G M E N T

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Rogers, J.A. :

1. This is an appeal from a decision of Findlay, J. given on 21 April this year. The claim concerns a claim by the Plaintiff against the Defendant under a Performance Bond. The Plaintiff had engaged a contractor, UDL Dredging Limited, to perform work in relation to Route 3 in the Country Park Section, Tai Lam Tunnel and Yuen Long Approach Road.

2. The contract which the Plaintiff had made with UDL Dredging Limited is dated 19 August 1995 and is exhibited to the affirmation of Mr. Li Kam Wa. There are really only two clauses of that which need be referred to. The first is Clause 19.1. That provides for dispute resolution should there be a dispute between the two parties; in effect, it provides that ultimately the dispute should go to arbitration. The other point about the contract which should be noted is that it is provided that there should be a performance bond in the sum of $20 m. That Performance Bond was provided by the Defendant. Two clauses of that are relevant. Under Clause 2, it said that :-

"2. Upon demand in writing made by the two authorized signatories of the Contractor upon the Surety from time to time or at any time during the validity of this Bond without proof or contestation of further condition on the Contractor the Surety shall forthwith pay to the Contractor the sum mentioned in the said demand."

3. Clause 4 reads :-

"4. The obligations of the Sub-Contractor and the Surety hereunder shall be continuing and shall remain in operation until the Sub-Contract shall have been in every respect duly and properly discharged performed and completed to the true purport intent and meaning thereof or until this Bond shall have been paid in full which ever shall first occur."

4. The contract works themselves, were completed some time in 1998 but there was a dispute which arose between the parties. It is outlined in two letters. On 10 July 1998, UDL Dredging Limited wrote to the Plaintiff and raised a claim of some $18 m in respect of sums which were said to be outstanding under the contract. On 7 August 1998, the Plaintiff replied to UDL Dredging Limited saying that :-

"We confirm that we are willing to arbitrate the dispute regarding the credit that you claim is owed to you.

We confirm that your entitlement to all or any part of the credit you have claimed is denied.

We have counterclaims against your company in respect of the following matters."

One of those matters was a claim for a sum of $8,190,898.96.

5. The claim in this action is based upon a demand, under the Performance Bond which was made on 8 December 1998 in the sum of $8,189,658, and is said to have been presented to the Defendant. It is alleged in the Statement of Claim that :-

"At the time that the said demand was presented, the obligations of the Defendant under the Bond were continuing and remained in operation, as the Sub-contract had not been 'in every respect duly and properly discharged, performed and completed' within the meaning of clause 4 thereof."

6. The Defence was filed in February this year and raised, in effect, two matters. The first was as to whether the demand under the Bond had been properly authenticated by authorised signatories. That point has not been pursued. The second was under paragraph 9 of the Defence where it is said that the Plaintiff was not entitled to make the demand as the Bond had expired.

7. The matter then proceeded by a summons both under the provisions of Order 18 rule 19 to strike out the Defence as disclosing no reasonable defence and secondly, under Order 14A, asking for two questions of law to be decided. The first related to the due execution of the demand and therefore can be ignored. The second was this :-

"Whether the Defendant is entitled to rely upon the contention of UDL Dredging Limited or its own contention (if such be made) that the Sub-Contract referred to in the Statement of Claim has in every respect been duly and properly discharged performed and completed as a justification for not making payment to the Plaintiff pursuant to a demand for payment thereunder, or whether it is precluded from doing so by the terms of clause 2 of the Bond."

8. It seems, having considered the skeleton arguments that were in the Court below and the arguments there, that the argument which was raised in the Court below was not directed to that particular question. The argument veered more onto the fact that there were continuing obligations because payments were due under the contract.

9. The Judge below held that there were facts which were in dispute and decided that the case was not one which could be decided under Order 14A. He said :-

"I am left with a situation in which there are conflicting allegations of fact, and the plaintiff's right to receive payment cannot be determined until that conflict of fact is resolved. Accordingly, this is not a matter in which Order 14A assists to bring an end to the matter."

10. Before this Court, Mr. Sussex, in a very succinct argument pointed out that clearly under the contract between the Plaintiff and UDL, there were both primary and secondary obligations. One of those secondary obligations was the obligation to resolve disputes under Clause 19 and in particular, to have matters mediated or in default arbitrated. Indeed, the argument goes slightly further, that, even without that clause, until all disputes between the parties, namely UDL and the Plaintiff as to the contract have been concluded, the obligations under the contract will not have been discharged and, in those circumstances, it cannot be said that the sub-contract has been in every respect duly and properly discharged, performed and completed to the true purport intent and meaning thereof as referred to in Clause 4 of the Bond. This point is clearly not the point which was raised under the summons under Order 14A and is, indeed, in my view, a different point to that which was argued below.

11. Mr. Barlow, on behalf of the Defendant, has pointed out that he considers that, in effect, there is no dispute as to the law and that Order 14A is really irrelevant to this matter. The point which Mr. Barlow has raised is that the Plaintiff's claim is not a bona fide claim and is not made in good faith because, in effect, the Plaintiff's alleged claim for $8 m, is a set off to UDL's claim which is being made under the arbitration. Mr. Barlow, however, does not dispute the fact that these matters have not been properly raised in the Defence and they would have to be raised if they were to be argued.

12. In my view, on the pleadings as they stand and in view of the argument which has been raised in this Court, it is clear that the Plaintiff is entitled to judgment. For those reasons, I would be prepared to allow this appeal. However, in view of the point which has been raised by Mr. Barlow, I consider that it would be appropriate to give the Defendant, if it sees fit, an opportunity to raise the Defence of lack of good faith or, indeed, fraud. But that chance, in view of the course which has been taken and the fact that the points which are raised on this appeal were clearly raised in the Notice of Appeal, must be very limited. I would propose that the Order that this Court should make is that the appeal be allowed, and judgment be entered for the Plaintiff in the sum claimed; but the Order should lie in the office for a period of seven days, pending any application which Defendant may seek to make.

Yam, J. :

13. I entirely agree.

Godfrey, J.A. :

14. A question of law or construction which the court is asked to determine under Order 14A ("Disposal of Case on Point of Law") of the Rules of the High Court should be stated or formulated in clear, careful and precise terms, so that there should be no difficulty or obscurity, still less any ambiguity, about what is the question that has to be determined; and this is all the more important since the determination of the question under Order 14A will be final: see the Supreme Court Practice 1999, Vol. 1 at 14/A/25. The question framed in the present case fell, as it seems to me, short of these desiderata and this has led to difficulties in the court below and for this court.

15. The judge below said :-

"... this is not a matter in which Order 14A assists to bring an end to the matter."

16. I am compelled to agree. In the course of the hearing in this court, it became clear that there was really no dispute between the parties as to any question of law, or even of construction. Both parties accepted before us that, if there are obligations under the sub-contract mentioned in the performance bond which remain to be discharged, the bond can be called; whereas, if there are no such obligations, it cannot be called, because it has expired.

17. The point now taken by Mr. Barlow for the defendant is that an assertion of the subsistence of continuing obligations under the sub-contract must be made in good faith and, he says, the defendant will seek to challenge the good faith of the plaintiff.

18. However, the defendant has not yet done so. Having regard to the course which the matter took below, and has taken in this court, it is, I think, appropriate to dispose of this appeal in the manner indicated by Rogers, J.A. and I accordingly agree, for the reasons he has given, with the order which he proposes this court should make.

19. I would add that the course which the proceedings took below and have taken in this court reflects no credit on the parties' legal advisers. The points taken on each side have changed at every stage from the initiation of these proceedings to their conclusion today, and this court proposes to make no order as to costs, here or below. Although in the end the plaintiff has succeeded in obtaining judgment, neither party will be awarded any costs at all.