BLUE POLES LTD v. BORD INDUSTRIES HK LTD

HCMP 2002/2022

[2023] HKCFI 759

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANCEOUS PROCEEDINGS NO 2002 OF 2022

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REASONS FOR DECISION

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1.  This is the application by originating summons dated 1 December 2022 (“OS”) of Blue Poles Limited (“Blue Poles”) a wholly-owned subsidiary of the West Kowloon Cultural District Authority (“WKCDA”) for a permanent injunction to restrain Bord Industries HK Limited (“Bord”), its sub-sub-contractor from presenting a winding up petition against Blue Poles based on a statutory demand dated 9 November 2022. At the conclusion of the hearing, the injunction sought was granted. My reasons appear below.

Background facts

2.  On 9 December 2022, Blue Poles obtained an interim injunction from Linda Chan J until the hearing of the OS or further order.

3.  Bord is a sub-sub-contractor of part of the Sub-Contract Works responsible for supplying installing end-grain timber flooring (“SC Works”) in the construction and completion of the M+ Museum in West Kowloon (“the Project”).

4.  By an entrustment agreement dated 24 September 2018 (“the Entrustment Agreement”) Blue Poles was entrusted by the WKCDA to complete the unfinished Project, the Main Contractor and Sub- Contractor having been terminated on or about 17 August 2018.  Gammon Construction Limited was appointed the Management Contractor (“Gammon” or “MC”) and Atkins China Limited the Contract Administrator (“Atkins” or “CA”).

5.  On 27 November 2018, Blue Poles and Bord entered into a Deed of Transfer and Assignment (“the Deed”) for Bord to carry out and complete the SC Works in accordance with its original conditions save that the Sub-Contractor’s functions would be carried out by Gammon or the CA.

6.  Bord completed the SC Works on 11 February 2021. The agreed contract sum of HK$9,863,610 was paid by Blue Poles to Bord. 　A further sum of $694,375 has also been paid for Bord’s variation claims.

7.  On 20 December 2021, Bord, through its solicitors, Messrs Giorgiou Payne Stewien (“GPS”), claimed to be entitled to a final account and variations in the sum in excess of HKD 20.45 million.  By 1 September 2022, Bord’s claim had increased to over HKD 27.8 million.

8.  The statutory demand served on Blue Poles on 9 November 2022 related to 7 items of variation particularised in §18 below.

9.  Blue Poles sought an injunction to restrain Bord from presenting a winding up petition and, as will become apparent, it was on the basis that it would be an abuse of process.

Legal principles

10.  It is well established that a company has to show that the presentation of a winding up petition against would be an abuse of process in order to obtain any injunction in advance to prevent it.  As stated by Godfrey Lam JA in Silver Starlight Limited v China Citic Bank Corporation Limited, Tianjin Branch [2021] HKCA 1248 at §14:

“Great circumspection must be exercised in respect of the grant of such injunction, for the right to petition for winding-up in appropriate circumstances is a right conferred by statute, and a would-be petitioner should not be restrained from exercising it except on clear and persuasive grounds …”

11.  Thus, for the presentation of a petition to be an abuse, a creditor must either have been told enough to understand that the debt is disputed on substantial grounds or must be assumed to have known this from facts of which he was aware: see Hung Yip (HK) Engineering Co Limited v Kinli Engineering Limited [2021] HKCFI 153 per Harris J at §14.

12.  Further, the statutory right to present a petition is only available to a creditor when the debt is liquidated: Butterworths Company Law (Winding Up and Miscellaneous Provisions) Handbook, 5^th edition para 179.05 cited in Emperor UA Cinemas Limited v The China Cinema Inv Ltd [2022] HKCFI  2316 at §19.

Relevant contractual provisions for variation claims 

13.  Clause 17 of Bord’s Letter of Acceptance provided that “[Bord] shall be responsible for and submit the built [sic] up of the Subcontract final account together with all kinds of substantiate [sic] for [CA’s or MC’s] verification and valuation at final account stage.”

14.  Clause 21 of the General Conditions of Sub-Contract (“GCSC”) authorised the CA or MC to order variations to the SC Works.

15.  Clause 25 of the GCSC[1] sets out the arrangement for interim payments. 

16.  Where, as here, Bord seeks payment for variations at final account stage,

(a)  Bord must supply necessary details as reasonably required by the CA or MC[2];

(b)  claims must be supported with relevant vouchers, receipts and invoices as proof[3]:

(c)  full build-up of the final account must be submitted with details enabling verification and valuation at the final account stage[4]: and

(d)    CA or MC is not liable to certify and Blue Poles is not liable to pay for materials delivered to site prematurely or are not stored properly on Site[5].

17.  It is relevant to note that clause 33 of the GCSC mandates arbitration for the resolution of all disputes arising out of the GCSC between the Contractor and Sub-contractor. Those provisions for dispute resolution apply mutatis mutandis to the Deed[6] , the parties to which are Blue Poles and Bord.

The statutory demand

18.  The 7 items of variation that feature in the statutory demand of 9 November 2022 are summarised in the table below:

Invoice No.	Description	Amount of debt
18	Replacement glue	HK$147,590
24	Base layer delivery and storage charges	HK$37,347.40
26	Storage costs	€9,604.98
32	Materials for repair works	AUD237,205.50
34	Extra materials (unpaid balance of Invoice No. 8)	HK$44,275
35	Accommodation expenses incurred due to the extended duration of the Sub-Contract	HK$287,244
36	Extra materials and equipment	AUD54,571.50

19.  Back in November 2020, Barry Coomber (“Mr Coomber”) of Gammon had already informed Bord by email[7] that claims for additional variations had to be submitted formally and specified the information required to support the same. 

20.  Since December 2021, the parties had engaged in extensive correspondence over the statutory demand invoices, with Blue Poles seeking documents substantiating the various claims and Bord failing/refusing to provide the information/documents requested and/or asserting that all information required under GCSC clause 25 (1) had been provided. Thus, when the statutory demand was served, disputes concerning those invoices were ongoing and had not been resolved.

21.  The spreadsheet attachments to GPS’s letter of 31 October 2022 show under column “K” that Invoices Nos 18, 32, 34, 35 and 36 were “in dispute under GCSC clause 33”.

22.  So, 9 days prior to the service of the statutory demand on 9 November 2020, 5 of the 7 items listed in the statutory demand were already in dispute under GCSC clause 33 but were not removed from the statutory demand.

23.  By the time of this hearing, 4 of the 7 items claimed had been withdrawn[8].

Clause 3.3 of the Deed

24.  The Deed sets out the contractual obligations of Blue Poles and Bord in relation to the completion of the SC Works.  Clause 3.3 of the Deed provides as follows:

“[Bord] acknowledges and agrees that claims and entitlements which [Bord] considers that it has only or may have to additional compensation or damages arising out of or related to the Rights will be assessed by the Contract Administrator (or the Management Contractor if the Management Contractor is appointed) in accordance with the terms and conditions of the Sub-Sub-Contract, and the assessment of the Contract Administrator (or Management Contractor) will be binding on [Bord], subject to Clause 10.”

25.  Schedule 2 of the Deed relating to Amendments to the Sub-Sub-Contract provides as follows:

“1. Where the Sub-Contractor is required, under the terms of the Sub-Sub-Contract to direct/instruct/review/certify, or similar functions, these functions will be carried out by the Contract Administrator or Management Contractor (when appointed).”

26.  The contentious issue arising from clause 3.3 are rival interpretations as to whether the only party with any role in the administration of the Sub-Contract, in particular, in assessing claims is only the MC (i.e. Gammon) which is Bord’s position or whether such assessments could be carried out by the CA (i.e. Atkins) or the MC (i.e. Gammon), the latter being Blue Poles’ position.

27.  For the purposes of the Deed and Schedule 2, the “Sub-Contractor” is the CA or MC.

28.  Under the Management Contractor Agreement, the CA has an oversight role over Gammon regarding trade contractors^[9]. It has a duty^[10] to examine each statement and advice from the MC stating what sum of money it recommends for payment to each trade contractor and to certify (with or without amendment) to the Employer the amount to be paid to each trade contractor.

29.  The MC must promptly notify the CA of all claims in connection with any trade contracts and must ensure that it provides the CA with a reasonable amount of time to review statements of progress claims in addition to the time required to respond to any queries especially items that are likely to be disputed either by the MC or the trade contractor^[11].

30.  Relevantly, the MC is prohibited from approving any trade contractor’s claims without a certificate from the CA whose review of the MC’s recommendations is undertaken in conjunction with the Employer ^[12].

31.  That Bord was fully aware of the CA’s role in the approval process is evident from the email dated 8 December 2021 from Anne Lau of Atkins to Mr Unger requesting, inter alia, supporting documents for the calculation based on build-up of spending, claims of insurance and repairing cost et cetera.

Genuine bona fide disputes

32.  As regards the 3 remaining claims, it is accepted that there has been no certification by Gammon of those claims.  However, it is Bord’s position that Gammon would have issued such certificates but for the interference of Blue Poles, inserting itself into what Bord considers to be the independent certification function of Gammon.

33.  In so far as there is a dispute as to the proper interpretation of clause 3.3, it must be a matter for determination by arbitration pursuant to clause 33 of the GCSC. Unless and until that issue has been resolved and certifications are issued by the relevant entity, there can be no debt owing under the disputed claims.

34.  Be that as it may, Bord submitted that once a third party is introduced into a construction contract as an assessor, he has 2 roles: one is as agent for the employer, for example, when issuing variation orders; the other is an independent certification role. Further, it is an implied term in every construction contract that the certification function is independent.

35.  §26 of GPS’s skeleton cites the following passage from Bailey on Construction Law, 3^rd Ed but giving an erroneous citation reference (§5.29). The correct reference is §5.27:

“When a contract administrator certifies the value of work performed by the contractor, the contract administrator will not usually be acting as the agent of the owner. The contract administrator will not usually be acting in the capacity of agent where the owner is entitled to challenge the certification’s made by the contract administrator on the basis that they do not meet the requirements of the relevant contract.”

36.  §27 of GPS’s skeleton then went on to cite the following passage from §5.84 under the rubric “Duties of the owner in relation to the contract administrator” and the sub-heading “(i) No interference”:

“5.84 Where a contract administrator is required to act independently or impartially, for example, in certifying the value of work performed by the contractor, it is unlawful for the owner to attempt to interfere with the independence of the contract administrator, so as to skew the decision of the contract administrator in favour of the owner, or otherwise to prevent the contract administrator from carrying out his functions properly.”

37.  As regards what amounts to ‘interference’, Lord Tucker opined in RB Burden Ltd v Swansea Corporation [1957] 1 WLR 1167 (at 1180-1181) that

“interference … connotes intermeddling with something which is not one’s business, rather than acting negligently in the performance of some duty properly undertaken”.

38.  For present purposes, proceeding on Bord’s reading of clause 3.3, namely that Gammon’s role is to administer the Sub-Contract while the CA (Atkins)’s role is to administer the Management Contract, a pre-requisite for payment to be made under the Sub-Contract pursuant to clause 3.3 of the Deed is an assessment or certification by Gammon.  

39.  In essence, Bord’s case is that Blue Poles has wrongfully “interfered” in Gammon’s certification process and but for that interference, the relevant certification/assessment would have been made of the 3 remaining items. 

40.  In so far as it is said that the MC/Gammon has been “side lined”, it is relevant to note that on 20 December 2021, GPS itself chose to bypass the MC and the CA by writing directly to Blue Poles seeking payment of, inter alia, the 3 remaining invoices.  

41.  Bord’s stance is summarised in the table in Mr Unger’s email of 7 December 2022[13] to Mr Coomber, which in pertinent part is reproduced below:

Invoice No.	DTC	Description	Base cost	Paid	Balance	Currency	Bord Comment	Gammon
18	6	Replacement glue DTC 006	213870	150000	63870	HKD	all documents supplied for base amount
24		Base layer delivery and storage charges	HK$37,347.40	0	HK$37,347.40	HKD	all documents charges supplied for base amount
26		Storage costs	€9,604.98	€0	€9,604.98	Euro	all documents supplied for base amount

42.  The penultimate paragraph of the 7 December 2022 email read:

“If I do not hear from you by tomorrow (8 December 2022) Bord will take it that Gammon has for all intents and purposes completed its assessment and requires no further information or explanation. …”

43.  That email elicited an immediate response from Mr Coomber who made the point that Gammon does not complete assessments in accordance with the Deed as it is not a party to it.  Gammon’s assessments are always made in accordance with the terms and conditions of Bord’s sub-contract with the Sub-Contractor, and roundly rejecting the ‘deadline’ Bord was seeking to foist on Gammon.

44.  Mr Coomber’s email sent later the same day referred to new information received from Bord but stated that “there are gaps that we need to fill”, expressing the hope that Mr Unger could help with the information.

45.  That email exchange which took place a month after the statutory demand necessarily put paid to any notion that Gammon had ‘signed off’ on Bord’s variation claims and did not require any further information or substantiation before it could proceed to certification or assessment.

46.  Mr William Wong SC, leading counsel for Blue Poles, submitted that in those circumstances there can be no present debt due and owing nor can the amounts claimed constitute liquidated damages.

47.  Whether there is any evidence of interference is best considered in the context of the 3 remaining claims which are said to be indisputable, liquidated and due and payable. In this process, it has to be borne in mind the oversight role the CA has over Gammon regarding trade contractors and Gammon’s obligations to the CA, matters discussed in §§28-31 above.

Invoice No. 18

48.  This invoice dated 11 February 2020 was originally part of DTC-0064 HKD 147,390.  It relates to an order for glue placed in March 2019 when the SC Works were not due to start till November 2019.  Glue has a shelf life of 12 months.  It resulted in the glue having to be disposed of and replaced.

49.  Blue Poles is unable to ascertain its liability because Bord has refused to explain why the glue in question was ordered in March 2019.  It has refused to provide a purchase order for review which would show whether or not the order was placed prematurely.  If that was the case, Blue Poles would not be liable under clause 25 (1) of the GCSC.

50.  Bord’s claim stated in the statutory demand is the cost of the replacement glue (less the on-account payment of HK$150,000) together with storage and disposal costs associated with the glue materials that had expired which total AUD 11,095.74^[14].

51.  Liability aside, the amount in issue is also uncertain because of significant discrepancies in the different versions^[15] of Invoice No. 18 submitted to Blue Poles.

52.  In any event, the spreadsheet enclosed with Bord’s letter of 31 October 2022 states that this invoice is in dispute under GCSC 33.

Invoice No. 24

53.  The amount claimed is HK $37,347.40.

54.  The Invoice No. 24 supplied relates to “return of base layer and unpack, storage, redelivery in HK due to delays on site” and is for a lesser amount (HK $22,500).

55.  Bord’s response is that the freight forwarder’s invoices were submitted to Gammon by the end of June 2021 and no issues had been raised with respect to the invoices.

56.  But that ignores the fact that Bord has not explained when the order was placed, and why storage was needed.  Nor is it clear why it was necessary to return, unpack, arrange storage and then redeliver the base layer, matters that were raised in the letter of 31 January 2022 from Blue Poles’ solicitors, Messrs King & Wood Mallesons (“KWM”) (“KWM’s January 2022 letter”).

57.  Bord’s stance harks back to their contention that Blue Poles has no role to play in the certification process which in my view, is a matter that should be arbitrated if maintained.

Invoice No. 26

58.  This is a claim for Euro 9604.98 for storage costs being the amount of the direct invoice from the freight forwarder whose charges were for storage of 12 pallets of timber for the base layer from February 2019 to December 2020.

59.  However, Bord has not responded to the request made in KWM’s January 2022 letter[16] to provide a buildup of the amount allegedly payable.

60.  There is also an overlap/duplication between invoices Nos 24 and 26 both which relate to base layer storage.

Conclusion

61.  In relation to the 3 invoices, it will be seen that questions have been raised, inter alia, by KWM. Those questions pertain to the subject matter of the invoices in respect of which Bord has made claims for payment. By no stretch of the imagination could those questions amount to “interference”.

62.  In my view, there is no evidence of any interference by Blue Poles or Atkins. Bord’s submission that Blue Poles has interfered in Gammon’s certification process or procured Gammon to refuse certification has no evidential basis and is rejected.

63.  Blue Poles has shown that it has bona fide disputes on substantial grounds with Bord in respect of all 3 extant invoices.

64.  Bord was well aware of the disputes at the time it issued its statutory demand. To bring a petition when the debt was bona fide disputed on substantial grounds so that the petitioner has no locus to present the petitioner as a creditor constitutes an abuse of process of the court and may well be a candidate for and award of taxation of costs on an indemnity basis: see Re Hyundai Engineering & Construction Co Limited [2002] 2 HKLRD 71 at §73J-74A. Bord had been forewarned of the possible consequences at the time the interim injunction was granted. Yet, Bord persisted.

65.  For the reasons stated above, a permanent injunction was granted and costs were awarded on an indemnity basis.