CHAN CHI LAM t/a HOI FAT CONSTRUCTION CO v. LAM WOO & CO LTD AND ANOTHER

CACV 87 /2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 87 OF 2017

(ON APPEAL FROM HCCT NO 52 OF 2014)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the Court):

1.  This is the plaintiff’s application for stay of execution of the monetary judgment against him pending appeal. Pursuant to Order 59 rule 14A(1), we exercise our power to determine the application on the basis of the written submissions lodged without a hearing.

2.  The plaintiff, who is a sole proprietor engaged in the business of a pipe-laying sub-contractor, brought this action against the defendant claiming $4,833,660.95, being the outstanding payment for works carried out by him under Contract No 22/WSD/02 (“the Contract”).  The defendant was the main contractor of the Water Supplies Department (“WSD”) under the main contract and the plaintiff was one of the defendant’s sub-contractors.

3.  According to the defendant, the value of the plaintiff’s work under the Contract should be $25,649,876.25, but the plaintiff was liable to the defendant for contra charges.  After deducting the contra charges, the defendant claimed that the plaintiff was overpaid by $6,195,925.37, which was the subject of the counterclaim.

4.  In the judgment of M Chan J handed down on 13 March 2017 (“the Judgment”), it was adjudged that the plaintiff was liable to the defendant.  Judgment was given for the defendant on the claim and the counterclaim and the plaintiff was ordered to pay the defendant $2,302,313.48 on the counterclaim with interest and costs.

5.  On 7 April 2017, the plaintiff filed a notice of appeal seeking to set aside the Judgment and contending that judgment should be entered in his favour in the sum of $4,651,948.22.  He applied for stay of execution of the Judgment pending appeal on 11 April 2017.  His application was dismissed by the judge with costs on 15 May 2017.  He renewed his application to the Court of Appeal on 24 May 2017.  It is his contention that there are strong arguments for all the three grounds of appeal advanced in the notice of appeal and that the appeal would be rendered nugatory if no stay of execution were granted as he would suffer serious deleterious damage and would be brought to financial ruin.

6.  The relevant principles for this application are well established, see Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §§7 to 9; SNE Engineering Co Ltd v Chim Kee Machinery Co Ltd, CACV 101/2016, 15 July 2016 at §§31 to 35.

7.  Unless the appellant can justify a stay, by demonstrating that good reasons exist, a stay will not be ordered.  The existence of a strong appeal will usually by itself constitute a good reason for granting a stay.

8.  If the court is not convinced there exist arguable grounds of appeal, a stay will not be granted.  But the existence of an arguable appeal (i.e. one with reasonable prospects of success) cannot by itself amount to sufficient reason for a stay, it is just a minimum requirement.  Where there exists an arguable appeal, the appellant must provide additional good reasons to justify a stay, such as that the appeal would be rendered nugatory without a stay.  Correspondingly, where it cannot be shown that an appeal would be rendered nugatory, the court will require, in the absence of other factors, the appellant to demonstrate strong grounds of appeal or a strong likelihood of success.

9.  Where it is said that the levying of execution would result in financial ruin or serious financial consequences for the appellant rendering the appeal nugatory, the court will require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion.

10.  In forming a preliminary view of the merits of the appeal for present purpose, we do not think it is necessary to go so far as to say that the grounds of appeal are not reasonably arguable.  We are not persuaded that the appeal would be rendered nugatory without a stay, and as the grounds of appeal could not be regarded to have a strong likelihood of success, it would not be appropriate to exercise the discretion to stay the Judgment pending appeal. Our detailed reasons follow.

If the appeal would be rendered nugatory without a stay

11.  The plaintiff’s sole proprietorship was set up in 1987, so he has been in business for 30 years.  He asserted that the earnings from his business were “just barely sufficient to cover [his] family expenses and [his] business needs”, that his business has “meagre cash reserves”, and that he does not have “much personal savings over the years”.  He claimed that he does not have the financial means to satisfy the amounts due to the defendant under the Judgment ($2,302,313.48, with accrued interest of $392,591.76 calculated up to 5 April 2017 and continuing), and if the defendant should petition for his bankruptcy in default of payment, he would have to close down his business.

12.  The plaintiff has produced the following documents regarding his financial position: profit and loss accounts of his sole proprietorship for six years from 2010/2011 to 2015/2016; tax assessments for those six years; extracts of the bank passbooks of his account and his wife’s account for 2017 with balances of less than $10,000; the vehicle registration documents of his vehicles; the land search record of a public housing estate flat purchased under the Housing Authority’s Tenants Purchase Scheme in November 1999 by him and his wife as joint tenants.

13.  According to the documents produced, the assessable profits of the plaintiff’s business for the past three years were $450,142, $621,924 and $720,856.  The profits for those years were recorded after deducting the salary he drew from the business and his drawings for those years were $400,000, $600,000 and $600,000 respectively.  His annual family expenses according to him were $252,000.

14.  In October 2016, the plaintiff purchased a new 5.5‑ton lorry crane on hire purchase at the monthly instalment of $17,354 payable for 18 months.  In addition, he owned three second-hand vehicles – a saloon and two tipper vehicles.

15.  The property held by him and his wife as joint tenants is the family residence and is unencumbered.  According to the plaintiff, the estimated value of this property in the Home Ownership Scheme secondary market is about $2.5 million in 2016, and the net proceeds (after payment of the premium to the Housing Authority and deduction of the transaction costs) would not be sufficient to satisfy the Judgment sum of more than $2.7 million.

16.  On 28 March 2017, the plaintiff applied for legal aid for the appeal.  Upon the requests of the Legal Aid Department, he has supplemented his application with “additional information for the means test on several occasions, the last of which was on 10 May 2017.”[1]

17.  The defendant has received notification from the Legal Aid Department on 21 June 2017 that the application for legal aid was refused[2]. In the reply submission of Mr Vincent Li for the plaintiff, it is stated that legal aid was rejected “for the reason that [the plaintiff] has failed to further information and/or other documents as required” and counsel submitted that “there was no statement made by the Legal Aid Department that [the plaintiff] has failed either the means test or the merit tests”.

18.  Granted that the reason for refusal of legal aid was the failure to supply “further information and/or other documents as required”, and that the plaintiff had supplemented his application with “additional information for the means test on several occasions, the last of which was on 10 May 2017”, we think it most likely that legal aid was refused in that the plaintiff has not satisfied the means test for failing to supply the information and documents required by the Legal Aid Department.

19.  The plaintiff selectively disclosed the bank passbooks of his savings account and his wife’s account for 2017 only and not the earlier years.  He stated that the plaintiff “maintains a trade account with Bank of China for its daily transactions”[3] but chose not to disclose the bank statements.  Having regard to the fact that he was engaged in the business for 30 years, that there is no suggestion that his business had suffered any loss (he merely asserted that the earnings were barely sufficient to cover expenses), and that the family dwelling was purchased as early as 1999, we are inclined to agree with Mr Jonathan Wong for the defendant it is somewhat inconceivable that the plaintiff has not accumulated significant savings from his earnings in business over the years.

20.  As for the unencumbered property which is the family home, the defendant has adduced evidence to show that it is possible for the plaintiff to obtain a refinancing loan in the sum equivalent to 80% of its market value less the premium payable as assessed by the Director of Housing as at the date of application.  Even if the amount of the refinancing loan would not be sufficient to discharge in full the Judgment sum of more than $2.7 million (as asserted by the plaintiff), we think it probable that it would cover a significant portion of the amount owed to the defendant.

21.  It does not appear to us from the accounts and tax assessments that the plaintiff’s business is on the decline or has a precarious existence.  In the last three years, there was growth in the receipts and a steady rise in profits.

22.  We are not satisfied on the evidence that if a stay were not granted, the plaintiff would have no means to satisfy the Judgment sum and would result in serious financial consequences for him rendering the appeal nugatory.

Merits of the appeal

23.  Three grounds of appeal were advanced.  Our preliminary view is that none of them could be regarded to have a strong likelihood of success.

24.  The first ground of appeal is an attack on §2 of the Judgment which stated as follows:

“By way of Defence, the JV [the defendant] claims that of a total of 58 work orders placed with Chan [the plaintiff] under the Contract, 45 work orders were for water mains replacement work (“Mains Work”). Of the 45 work orders for Mains Work, the parties had agreed on the rates for the works under orders 68, 12 and 40, in the case of the latter 2, with rates agreed for the construction of fire hydrants and associated pipe works and for the construction of cross road water mains. …”

25.  The plaintiff’s contention is that the above is a finding of the judge that the parties only agreed rates for the works under orders 68, 12 and 40.  This is clearly contradictory to contemporaneous records and the evidence of the factual witnesses in that it was common ground that the parties had agreed rates for the works under 18 work orders being 10, 11, 13, 30, 41, 46, 64, 65, 68, 86, 101, 110, 113, 118, 134, 137, 138 and 139, as well as the rates for the construction of fire hydrants and associated pipe works and the construction of cross road water mains for work orders 12 and 40.

26.  Mr Wong pointed out that what the judge did at §2 of the Judgment was merely to provide a summary of the defendant’s case pleaded in §§7(3) and (4) of the amended defence and counterclaim as background information.  He accepted that the recitation in §2 of the Judgment is incomplete in that the judge did not list out the 18 work orders involving agreed rates as set out in §7(1) of the pleading.  It is not a finding as such. And even if the judge had failed to recite the defendant’s pleaded case in full, nothing would turn on this as the judge had accepted the evidence of the single joint expert (“the SJE”) on the applicable rates for the work orders[4] (of which there is no appeal) and the SJE has enumerated all the 18 work orders with agreed rates[5] which match those set out in the first ground of appeal.

27.  It is doubtful if the first ground is reasonably arguable, and quite plain that it is not a strong ground of appeal.

28.  The second ground of appeal hinged on §45 of the Judgment, which reads as follows:

“As a result of its late disclosure, the JV was not granted leave to produce any documents to support the apportionment and between the various sub-contractors engaged to do work under the Main Contract. For lack of documentation to evidence the apportionment of the costs, the JV accepts that the valuation of Chan’s works should be made without regard to any apportionment for the value of work done by other sub-contractors. I agree that the valuation should be so made, without regard to any apportionment, since the onus of proving such work and apportionment is on the JV, which it has failed to establish.”

29.  The plaintiff contended that the judge’s adoption of the SJE’s evaluation for payment of work done by the plaintiff under item 1.1 of Appendix 1 in the sum of $19,354,370.61 in §46 of the Judgment is contradictory to her finding in the preceding paragraph that the valuation should be made without regard to any apportionment for the value of work done by other sub-contractors.  According to the plaintiff’s calculation, the value of work done under item 1.1 should have been assessed at $25,809,032.31.

30.  The defendant submitted there is no contradiction between §§45 and 46 of the Judgment for these reasons:

(1)  Disregarding the defendant’s apportionment ought not to be equated with the proposition that no apportionment should be made.

(2)  The figure which the defendant invited the judge to accept and which the judge did accept at §46 ($19,354,370.61) was the figure which the SJE arrived at when the defendant’s apportionments were omitted from consideration[6].

(3)  As it was accepted there were work orders involving more than one sub-contractors, the SJE had adopted the following approach:

(i)  if the defendant’s certified quantities are the same as the corresponding quantities from WSD’s final accounts, WSD’s quantities are adopted (Step 1);

(ii)   if the defendant’s certified quantities are not the same as WSD’s quantities but the plaintiff’s applied quantities are the same as the defendant’s certified quantities, both parties’ agreed quantities are adopted (Step 2);

(iii)  in disregarding the other sub-contractors’ quantities for apportionment, the lower of WSD’s quantities and the plaintiff’s applied quantities are adopted when assessing the certified quantities to the plaintiff (Step 5B)[7].

(4)  The above approach results in either (a) a back-to-back assessment (Step 1) or (b) assessing the quantities based on the plaintiff’s own applied quantities (Steps 2 and 5B).  To that extent, there is no inconsistency with §45 of the Judgment as the foregoing exercise did not involve the consideration of any apportionment made by the defendant.

31.  We have considered the plaintiff’s arguments in reply.  In our preliminary view, we do not think the second ground of appeal could be regarded to have a strong likelihood of success.

32.  The third ground of appeal is that the judge failed to make a finding on the plaintiff’s claim for additional day works in the sum of $499,600.  This amount was contained in the plaintiff’s final account which formed the basis of his claim, even though it was not pleaded in §7 of the statement of claim which identified two major items for which the defendant had not certified or had grossly under-certified, being (1) work done for the reinstatement of road surface along Ta Chuen Ping Street under work orders 12, 80 and 139; and (2) the additional work of abandoning existing valve chambers.  The plaintiff had adduced evidence in support of the claim for additional day works, and the defendant had not advanced any positive case against this claim.  This claim was mentioned in the supplemental closing submissions of the plaintiff’s counsel at trial.

33.  Mr Wong pointed out that this claim was not pleaded in the statement of claim or the re-amended reply and defence to counterclaim.  As this claim was not raised in the pleading, the defendant was not required to and did not advance any positive case against it, and the judge was not required to make a finding.

34.  We are not persuaded there is any merit in this ground of appeal.

Orders

35.  For the above reasons, we dismiss the application for stay of execution pending appeal.

36.  Costs of the application should follow the event.  We order the plaintiff to pay the defendant’s costs of this application and make a gross sum assessment.

37.  The defendant seeks costs in the sum of $118,600.  Having regard to the fact that many of the arguments have been advanced in the application before the judge, we would allow reasonable costs of $76,700.

38.  The costs order and gross sum assessment are orders nisi.  Any party seeking to vary the orders nisi shall lodge a written submission within seven days hereof, failing which the orders shall become absolute.