XCHRX WAI BO CONSTRUCTION AND ENGINEERING (H.K.) CO. LTD. v. WO FUNG ENGINEEERING LTD.

HCA 7656/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7656 OF 2000

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REASONS FOR DECISION

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Introduction & background

1. This is an appeal by the Defendant, Wo Fung Engineering Limited against the decision and order of Master Kwan of 5 December 2000 whereby the Master granted the Plaintiff Wai Bo Construction and Engineering (H.K.) Company Limited summary judgment under Order 14 in terms of paragraphs (1) to (5) of the prayer of the Statement of Claim.

2. The background to this action is not in dispute.

3. By a building contract dated 6 October 1997 (hereinafter called the "main contract") Success Well Investment Limited (hereinafter called "SW") engaged the Plaintiff as the main contractor to construct the superstructure of a building at 244-250 Hennessy Road. It is common ground that this contract was obtained by the Plaintiff by tender, and in the process of the tender exercise the Plaintiff and the Defendant were in touch and the Defendant assisted the Plaintiff in the preparation of the tender. It was also common ground that at the time, the parties worked on the basis that the whole task under this main contract between the Plaintiff and SW would be performed by the Defendant. The parties indeed entered into a sub-contract which is the subject matter of this proceedings.

4. While the main contract was in the form of the standard form building contract RICS (HK Branch) Edition 1986, the sub-contract was undated and was in Chinese consisting of only 8 clauses. There are some disputes between the parties on the exact translation of the clauses. I set out below the relevant clauses adopting the translation in the Statement of Claim and where appropriate indicating in round brackets the rival translation of the Defendant to replace those parts which are set out in italics.

"(1) Party A sub-contracted the construction of the Works to Party B, Party B should carry out the construction works in accordance with the procedures and drawings prescribed by the architect and the architect firm designated by the employer, and should not delay. If the quantity and quality of the work do not comply with the standards required in work procedures or the drawings, upon notification by the employer and its designated architect, architect firm or rectify or rebuild, Party B must forthwith comply with instruction to rectify, such (all fees for) material and labour to be borne completely by Party B".

(3) After inspection and acceptance of the Works by the employer and its designated architect and architect firm and payment of the contract sum to Party A by the employer through bank, Party A shall after deducting 2% management charge remit the balance to Party B and if there is any delay, Party A would be liable for all loss; if the employer does not remit the payment, Party A should not be responsible for making advance payment or any other fees.

(6) Party B must exercise due care and be responsible for the implementation of the Works and the management of the workers and should not delay the completion date of the Works, if [Party B] does not carry out the Works in accordance with the instructions of the employer and its designated architect and architect firm, or uses pretext to delay the progress of the Works or fails to complete (abandons) the Works, then Party B shall be entirely responsible for the compensation for all consequences and loss incurred as a result of this."

5. As a requirement for awarding the main contract to the Plaintiff, SW required the Plaintiff and one other surety to enter into a Bond in the sum of $3,899,600 in its favour. The Plaintiff had duly caused the Bank of China Group Insurance Company Limited (hereinafter called "BOCG") to be the surety for such Bond which was dated 2 June 1997. The condition for the Bond was as follows:

"NOW THE CONDITION of the above written Bond is such that if the Main Contractor shall duly perform and observe all the terms, provisions, conditions, obligations and stipulations of the Contract on the Main Contractor's part to be performed and observed according to the true purport intent and meaning thereof or if on the default by the Main Contractor and on demand by the Employer the Surety shall satisfy and discharge the damages sustained by the Employer thereby up to the amount of the above written Bond then this obligation shall be null and void but otherwise shall be and remain in full force and effect ... "

6. It is plain that the Bond was to secure the due performance of the main contract on the part of the Plaintiff as the main contractor and BOCG would be liable under the Bond for damages suffered by the employer in the event of any default in the performance of the main contract to the extent of the amount of the Bond, i.e. $3,899,600.

7. In consideration of the BOCG entering into the Bond as surety, the Plaintiff and two of its directors gave a counter guarantee to BOCG agreeing to indemnify the BOCG for all loss and damages which BOCG would incur in entering into the Bond. Even without this counter guarantee, the Plaintiff would have been liable in restitution to indemnify BOCG for any loss suffered by BOCG in giving the Bond as the only conceivable situation where BOCG would become liable under the Bond was in the event of the default in the performance of the main contract.

8. It has never been suggested that the Defendant was not aware of the requirement of this Bond or the fact that the Plaintiff had given such Bond in order to obtain the award of the main contract. Nor has there been any suggestion that the Defendant was not aware of the counter guarantee given by the Plaintiff. Indeed, bearing in mind that it is not in dispute that in effect the Defendant was the party to prepare the tender for the Plaintiff, it could hardly be maintained that the Defendant would not be aware of the Bond, and where such a Bond is given, it is just common practice that the bank or the insurance company joining in to give the Bond would require a counter guarantee from the contractor.

9. Having taken into account the extension which the architect had granted, the completion date for the Works under the main contract was 21 May 1998. It is again common ground that the Works were not completed by that date. There was very little progress in the Works after 22 May 1998 and there were stoppage of work and sit-in by workers at the site. On 14 October 1998 the architect served a letter on the Plaintiff under the main contract as a notice of the entitlement to terminate the contract if the Plaintiff's failure to proceed regularly and diligently with the works was to continue or to be repeated. On 29 October 1998 SW served a notice of termination of the main contract. SW subsequently employed someone else to complete the Works.

HCCT No.58 of 1999

10. SW issued a writ in HCCT No.58 of 1999 on 27 November 1998 against BOCG to enforce the Bond on account of the Plaintiff's default in completing the Works under the main contract. SW claimed that as a result of the default on the Plaintiff's part, SW had suffered damages in excess of HK$8,050,000 being the liquidated damages and ascertained damages for the period between 22 May 1998 and 29 October1998 payable by the Plaintiff to SW under the main contract. BOCG defended the claim by SW mainly on the grounds that in fact the Plaintiff was not in default of the main contract and that the delay was due to the fault of SW or its architect in failing to issue all instructions timeously and honour its payment obligations under the main contract. At the same time, BOCG also joined the Plaintiff and its 2 directors as third parties to the proceedings to seek an indemnity from them.

11. The attitude of the Plaintiff then and now was very simple. As the Defendant was the party to carry out the whole of the Works under the main contract in accordance with the instructions of the architect and the Defendant had agreed under the sub-contract not to delay in the execution of the Works, if there was any default in the performance of the main contract, it must be due to a default on the part of the Defendant in the performance of the sub-contract. It is common ground that after the issuance of the Third Party proceedings in HCCT No.58 of 1999 Mr Tam Jr. had got in touch with Mr Ng of the Defendant and certain arrangement was worked out in relation to the conduct of the Third Party proceedings. There was a dispute as to what exactly had been worked out, and for the purpose of this application, I was to assume that the allegation of Mr Ng of the Defendant was true.

12. According to Mr Ng, after the commencement of the Third Party proceedings, Mr Tam Jr. approached him and said that the Plaintiff could not afford to pay the substantial costs in defending the proceedings. Mr Tam Jr. suggested that as it was the Defendant who carried out the contract works and the parties had a genuine grievance against SW, the employer, the Defendant might as well fund the Plaintiff in the litigation. Mr Ng agreed because he was strongly of the view that the employer and the architect were acting less than reasonably and impartially and they should be blamed for the delay and the termination of the agreement.

13. In January 1999 the parties decided that Messrs. Joseph C.T. Lee, solicitors should be appointed to act for the Plaintiff in defending the proceedings. The retainer was contained in a letter dated 20 January 1999 which was counter-signed by both the Plaintiff and the Defendant. In this letter it was clearly agreed that Mr Ng will be the solicitors' regular contact for instructions regarding this matter and that Mr Ng was authorised to make all relevant decisions concerning the litigation, including settlement. Also it was expressly stated in the letter that "Wo Fung Engineering Ltd. hereby accepts sole and full liability for your professional fees". The Plaintiff accepted and confirmed the terms of the retainer letter "subject to the payment of your professional fees", which in the context, I would take it to mean that the Plaintiff would agree to the terms of the retainer letter but the Plaintiff would not agree to pay the solicitors' fees which should be paid by the Defendant.

14. SW's action came to trial in May and June of 2000. On 23 June 2000 Burrell J. gave judgment for SW in its claim against BOCG and for BOCG in its third party claim against the Plaintiff. He held that the amount of liquidated damages payable by the Plaintiff to SW under the main contract was $6,250,000, and accordingly BOCG was liable for the full amount of $3,899,600 of the Bond. Burrell J. also awarded interest at the rate of 1% above the prime rate from the date of the writ. As to the third party proceedings, Burrell J. held that BOCG was entitled to be indemnified by the Plaintiff and its 2 directors for the judgment sum together with costs incurred in defending the claim by SW.

Events after HCCT No.58 of 1999

15. After judgment, there were a number of meetings between Mr Tam Jr. of the Plaintiff and Mr Ng of the Defendant in September 1999. According to Mr Tam Jr. in a meeting held on 7 September 1999 there was consensus reached between the parties that the Defendant would be fully responsible for all costs incurred by the Plaintiff in HCCT No.58 of 1999 and all costs, damages and compensation which the Plaintiff was held liable to pay. According to the Defendant the agreement reached between the parties in September 1999 was that the Defendant was to pay the Plaintiff's cost in HCCT No.58 of 1999 only. As to all other liabilities of the Plaintiff the Defendant would not be responsible and neither the Plaintiff nor the Defendant would have any claim against the other. Each party set out its version of the agreement in a letter and sent it to the other side to countersign. Neither party was willing to sign the letter written by the other side.

The present action

16. On 31 July 2000 the Plaintiff issued the writ in the present action against the Defendant. The Plaintiff alleged that the Defendant was in breach of the sub-contract. In fact in the Statement of Claim, the claim against the Defendant was put on 2 bases. First it was said that under clause 6 of the sub-contract and in the event that had happened the Defendant had become liable under that clause to indemnify the Plaintiff of the liability incurred by the Plaintiff in HCCT No.58 pf 1999 (see paragraph 26 of the Statement of Claim). The other basis for putting the claim was that the Defendant had acted in breach of the terms of the sub-contract and as a result the Plaintiff suffered loss and damages. The loss and damages claimed would include the amount which the Plaintiff had become liable to BOCG in the third party proceedings including the costs and interest ordered to be paid by Burrell J. The loss would also include other claims which SW may have against the Plaintiff, the loss of the 2% profit which the Plaintiff claimed that it would be able to earn if the Defendant had properly performed the sub-contract, and also loss of goodwill (see paragraph 27 of the Statement of Claim). Of course the Plaintiff's contention was that the Defendant's breach of the sub-contract in this case would also fall within clause 6 and accordingly under clause 6 the Defendant would have to indemnify the Plaintiff for all the consequential damages and loss which the Plaintiff would be liable to pay to BOCG or to SW. The effect of this contention was that the only material difference between the claim in paragraph 26 and the claim in paragraph 27 is that the liability under paragraph 27 would include the claim for the loss of the 2% profit and the unquantified loss of goodwill.

17. In the prayer to the Statement of Claim, the Plaintiff asked for the following relieves:

"(1) A declaration that the Defendant is to indemnify the Plaintiff against all losses, damages, costs and expenses that the Plaintiff may incur or become owing to BOCG and/or SW as a result of the Defendant's breaches of the Sub-contract, being any damages and costs awarded or may be awarded against the Plaintiff in favour of BOCG and /or SW for breaches of the Contract and all legal costs and expenses incurred by the Plaintiff in defending any claims by BOCG and S/W;

(2) payment of the said sum of HK$3,899,000 [should have been HK$3,899,600] togethe4r with interest and costs incurred by BOCG in HCCT 58/99 to the Plaintiff;

(3) an enquiry into damages, alternatively damages;

(4) an order for payment by the Defendant to the Plaintiff of all sums found due to the Plaintiff;

(5) costs;

(6) interest pursuant to s48 High Court Ordinance Cap 4 Laws of Hong Kong; and

(7) further or other relief."

18. On 6 September 2000 the Plaintiff issued a summons for summary judgment. In the summons the Plaintiff asked for "final judgment in this action against the Defendant for the amount claimed in the Statement of Claim with interest as therein claimed and costs to be taxed if not agreed". The Master gave judgment for the Plaintiff in terms of paragraphs (1) to (4) of the prayer in the Statement of Claim. She also ordered the Defendant to pay the Plaintiff costs of this action and the application for summary judgment with certificate for counsel to be taxed if not agreed. While there was some debate on whether there would be jurisdiction to grant a declaration in summary judgment and whether the declaration in terms of paragraph (1) of the prayer was too wide to be appropriate as a relief for a claim under clause 6 of the sub-contract, there was no point taken that the relief asked for in the summons of 6 September 2000 did not include any declaratory relief or that in fact the relief asked for in the summons was restricted to "the amount claimed" in the Statement of Claim together with interest and costs only.

19. The Defendant appealed against the Master's decision.

20. Before me, counsel for the Plaintiff made it clear that the application for summary judgment was made purely on the basis of the enforcement of the Defendant's obligation under clause 6 of the sub-contract. In other words, counsel did not seek to justify the Master's order on the basis that such order would be appropriate as a relief for the Defendant's breach of the sub-contract. However, counsel for the Plaintiff did submit that if I should consider that the declaration was too wide or was otherwise not the appropriate relief then I should nevertheless still grant summary judgment against the Defendant in terms of paragraph (2) of the prayer and that I should grant a declaration that the Defendant is liable for all loss and damages suffered by the Plaintiff as a result of the Defendant's breach of the sub-contract in failing to complete the Works or a declaration in such other terms as I think appropriate. In the alternative to the declaration, the Plaintiff's counsel also invited me to order that the Plaintiff may be at liberty to apply to restore the hearing for the determination of the Defendant's further liability and quantum of damages.

Defendant's showing cause on merits

21. The Defendant contended that there should not be summary judgment because there were triable issues on 3 main issues. They were :

(a) There was a dispute on whether there was any collateral contract between the Plaintiff and the Defendant whereby the Plaintiff had agreed to provide the Defendant with all financial assistance and to undertake to see to it that the employer, SW would be punctual about the payments.

(b) There was a dispute on the applicability of clause (6) in this case. The Defendant contended that the Defendant would only be liable under this clause if the delay or stoppage of work by the Defendant was without good cause. The Defendant contended that there was good cause for the delay.

(c) There was also a dispute on whether there was any subsequent settlement agreement between the parties.

The collateral contract

22. Briefly the Defendant's contention was that during the tendering process of the main contract, there was an agreement reached between the Defendant and Mr Tam Sr., a director of the Plaintiff who died before the termination of the main contract, whereby it was agreed that the Plaintiff was to give the Defendant financial assistance to enable the Defendant to perform all the works under the main contract subcontracted to it. It was also said that Mr Tam Sr. also promised to see to that the employer would make payment punctually. This contract was made orally. The Defendant admitted that there was delay in the performance of the works under the main contract but said that the delay was due to the Defendant's financial inability to proceed with the works. Mr Ng of the Defendant said that he had approached Mr Tam Jr. "to seek his help in providing financial assistance promised by Mr Tam Sr. but neither the Plaintiff nor Tam Jr. cared to deliver the promise and fulfil the undertaking by either taking steps to procure early payments from the employer or providing the necessary loans". Hence it was contended that the delay which led to the termination of the main contract by SW was not due to the fault of the Defendant but was due to the breach of this collateral agreement by the Plaintiff.

23. Mr Tam Sr. having died, there was no one from the Plaintiff who could give any direct evidence to contradict the allegation of Mr Ng of the Defendant. However, according to the evidence of Mr Ng, the promise was made also in the presence of one Mr Kwok and after judgment was given by the Master, the Defendant had also asked Mr Kwok to make an affirmation to support the Defendant's appeal. Plainly Mr Kwok's assistance was sought because the Master had been convinced that the allegation of the collateral agreement was unbelievable. Mr Kwok confirmed the circumstances of the initial contacts between Mr Ng and Mr Tam Sr. He also deposed to the fact that the Plaintiff had little experience in constructing blocks of flats and it was not easy for the Plaintiff to line up work force to carry out the works required under the main contract. On the other hand the Defendant was an experience construction contractor and that it was Mr Ng who put in the price for the tender. However what was completely lacking in his affirmation was any suggestion that Mr Tam Sr. had ever made any promises to finance or for seeing to that the employer should make payment punctually. Yet if the allegation by Mr Ng is true, such promises must be known to Mr Kwok.

24. In my view apart from the difficulty arising from Mr Kwok's evidence, the Defendant's allegation could not stand against the clear express terms in the sub-contract. Plainly if the alleged promise by Mr Tam Sr. was made in his own personal capacity, then it would not be binding on the Plaintiff and could not be relevant to the Defendant's liability in this case. If on the other hand the alleged promise was made by Mr Tam Sr. in his capacity as being an agent for the Plaintiff, then such promise would be against the express words in clause (3) of the sub-contract. Plainly under clause 3 the Plaintiff would not be responsible for making any advance payment even if the employer does not make payment in time. This would be wholly against the idea that the Plaintiff was to secure or make sure that the employer would make payment punctually, and would also be against the spirits of any suggestion that the Plaintiff was under an obligation to give any financial assistance or loan to the Defendant.

25. Another difficulty in the Defendant's way on this contention is that in my view the alleged agreement was too uncertain. What was supposed to be the Plaintiff's obligation in relation to the promise for financial assistance. At certain parts of his affirmation, Mr Ng suggested that the Plaintiff had promised to make loans to the Defendant subject to payment of interest at commercial rates. But what was the amount of the loans? What were the commercial rates? Likewise what was supposed to be the obligation arising out of the undertaking "to see to it that the employer would be punctual about payments". Does it mean that the Plaintiff had taken upon the obligation to guarantee that the employer would be punctual about payments? If so, does it mean that if the employer was not punctual, the Plaintiff would be liable to make the payment so as to make up the deficiency of the employer? If so, how could this obligation be consistent with the express words of clause (3) whereby it was expressly agreed that the Plaintiff was not to be responsible for making advance payment.

26. For the above reasons, I am of the view that there is no triable issue on this collateral agreement point. I am of the view that it was unbelievable that there should be such an agreement, and in any case, even if there was any discussion between Mr Tam Sr. and Mr Ng along touching on such topics, I am of the clear view that that could not amount to an enforceable agreement capable of affecting the Defendant's liability in this case.

The applicability of clause 6

27. It was contended by the Defendant that the Defendant's responsibility under clause 6 could only arise in 3 circumstances , viz:

(a) the Defendant does not carry out the Works in accordance with the instructions of the employer and its designated architect and architect firm;

(b) the Defendant uses pretext to delay the progress of the Works;

(c) the Defendant "abandons" the Works.

It was only when anyone of the above conditions was satisfied that the clause would operate to make the Defendant entirely responsible for the compensation for all consequences and loss incurred by the Plaintiff as a result of the occurrence of condition.

28. Thus far, the Plaintiff took no issue with the Defendant's contention. The Defendant further contended that on true construction of the clause, the Defendant would still not be responsible for the compensation if the occurrence of the condition was with good cause, and the good cause in this case was that the Defendant's stopping work or inability to complete the Works before the completion date was due to (a) the default of the employer in failing to make payment and/or the late architect's instructions for variations and/or additional works; and (b) the Plaintiff's default in failing to honour the collateral agreement. Contention (a) would amount to saying that the Defendant's default was due to the breach of the main contract on the part of the employer or its architect. As to contention (b), since I am of the view that there was no triable issue on the issue of the alleged collateral agreement, the contention even put in the context of this issue of the applicability of clause 6 would not assist the Defendant.

29. In relation to contention (a), I note that there is nothing in the affirmation filed by the Defendant to state precisely what the Defendant would allege to be acts of the breach or the short coming in the conduct of the employer SW, its architect. All that the Defendant had done was through the affirmation of Mr Ng referred to certain part of the witness statement and the transcript of the evidence of Mr Tam Jr. in HCCT No.58 of 1999. The following parts of the witness statement of Mr Tam Jr. was referred to and relied on by the Defendant:

"4. Starting from early 1998, the Architect, acting mostly through Mr Winson Tsang and occasionally by Cecil Chao himself, became very unreasonably by withholding the issue of interim certificates to Wai Bo. This caused a serious cash flow problem to Wai Bo. I tried to make complaint to Success Well but to no avail. As a result of my enquiries, I discovered that Cecil Chao was not only the Architect of the Project but also one of the owners and developers of the Project. At that times, the property market took a downward dive. Naturally Cecil Chao was not keen in having the Project completed on time.

5. In order to finance the construction costs of the Project, Wai Bo had to borrow a loan of HK$6 million from its bank. This should be adequate to take the Project through to the completion stage if SW was punctual in honouring its payment obligations. However, Wai Bo began to experience serious problem in paying suppliers and the sub-contractors when the Architect refused to approve Wai Bo's interim applications No. 10, 12, 14, 16, 18, 19 & 21. Our relationship with the Architect and SW became strained.

6. I recall shortly before 29 October 1998, a sit-in was staged by some of Wai Bo's sub-contractors and their employees. This was a spontaneous act on their part and had nothing to do with Wai Bo. What they wanted was to demand payment of their wages in arrears. This, nevertheless, presented an opportunity for SW to get rid of Wai Bo and their workers. SW seized on it to obtain an injunction. On 29 October 1998, Wai Bo's employment under the contract was determined and Wai Bo's workers left the site shortly thereafter.".

30. In relation to the transcript of the evidence of Mr Tam Jr. the Defendant relied on those parts of Mr Tam's evidence whereby he agreed that Wai Bo had borrowed a sum of $6 million from a bank shortly after the main contract, but he was unable to give a satisfactory explanation as to how the sum was being made used of. The suggestion that the stoppage of work and the inability to complete the Works in time were due to the fault of SW and the architect was considered by Burrell J. and he dismissed such suggestion. The Defendant also relied on the finding of Burrell J. when he said:

"There was evidence that Wai Bo secured a loan from its Bank of $6 million. There was no evidence as to how the loan was psent. It can be inferred from Mr K.K.Tam's (Wai Bo's general manager) written evidence that the loan pre-date the plaintiff's refusal to make interim payments. If the loan was not used to pay sub-contractors and for materials, it should have been. If it was so used it (a) was not enough and (b) further demonstrates Wai Bo's own financial embarrassments."

31. It was contended that the fact that the Judge had dismissed the Plaintiff's suggestion that the delay was caused by the fault by SW and the architect was not binding on the Defendant who was not a party to HCCT No.58 of 1999. I fully accept this argument. However, the Plaintiff's case was not that the judgment and finding were legally binding on the Defendant. Rather the suggestion was that since the litigation was fought with at least the joint effort of both the Plaintiff and the Defendant, there was really nothing else which could be put forward to show that in fact the fault was that of SW or the architect. It was common ground that in fact the Plaintiff did not really participate in the Works. Its role was simply to collect the payment from the employer and to pay them over to the Defendant after deducting the 2% profit. All the particulars of short comings on the architect and SW must essentially be coming from the Defendant. No doubt in the litigation between SW and the Plaintiff, the delay on the part of the contractor was all attributed to the Plaintiff because it was the Plaintiff who was the main contractor and there was no reason for SW or the Judge to differentiate any delay or default on the part of the Plaintiff on the one hand and the Plaintiff's sub-contractor on the other. The arrangement between the Plaintiff and the Defendant was such that all the Works under the main contract were to be done by the Defendant and the Plaintiff was not even underwriting the financial risks involved in the project in the sense that the Plaintiff had expressly contracted out of any obligation even to make payment to the Defendant in the event that the employer SW did not pay or was in delay in making payment. In such circumstances, it is difficult to see how Burrell J.'s finding on the Plaintiff's financial embarrassment being the cause for the delay and stoppage of work could assist the Defendant. It must also follow that the incident of the $6 million loan was wholly irrelevant to the present case.

32. It is also important to note that in purporting to show cause in the present case, apart from relying on the witness statement of Mr Tam Jr. to demonstrate that the Plaintiff had in HCCT No.58 of 1999 taken the stance that the delay was not caused by the Plaintiff's sub-contractor, the Defendant had really put forward no other material to show that a different conclusion on the cause of delay should be reached in this action. Indeed the tenor of the evidence of Mr Ng in this case was not so much that there was actual fault on the part of SW and the architect. His main complaint was that he was not receiving the financial assistance which he said Mr Tam Sr. had promised and in consequence thereof, the Defendant suffered from financial hardship and this in turn led to the Defendant's inability to complete the work. As I do not think that there was any triable issue on the collateral contract point, I am of the view that there was no triable issue on this point on the cause of the delay of the work either.

33. The Defendant raised the further point that since the Plaintiff was now just relying on clause 6 to seek summary judgment, the Plaintiff would have to show that the Defendant's conduct must fall within one of the 3 conditions in the clause. It was contended that even if the Defendant had failed to complete the Works before the completion date, it did not mean that the Defendant had abandoned the Works, which the Defendant contended was the correct translation and meaning of the third condition in clause 6. I agree that the words "半途而廢"used in the original Chinese text of the clause did suggest something more than not completing the Works. To that extent that part of the translation proffered in the Statement of Claim suggesting that the words "半途而廢" should carry the meaning of "fails to complete the Works" was not accurate. I am of the clear view that the words "半途而廢" clearly connote the concept of "giving up" certain task, and I am of the view that the rival translation proffered by the Defendant was more appropriate.

34. However, the responsibility under clause 6 could also be triggered off when the Defendant "uses pretext to delay the progress of the Works". The word "pretext" plainly connotes uses unjustifiable excuses. In the present case, I am of the clear view that this was plainly the case. There was no dispute that the Defendant did delay the Works. The excuses put forward by the Defendant were that the delay was due to the Defendant's financial difficulty and the Plaintiff's failure to render financial assistance and/or the default on the part of SW or its architect. These were plainly not good excuses.

35. For the above reasons, I am of the view that there was no triable issue on the applicability of clause 6 either.

Settlement agreement

36. The Defendant's contention was that there was a settlement agreement reached in September 2000 although the Plaintiff had failed to acknowledge that by signing on the letter drafted by the Defendant. The Plaintiff's contention was that such allegation was unbelievable. In fact the Plaintiff's contention was that an agreement was indeed reached but it was on the terms as set out in the Plaintiff's letter of 28 September 2000 which the Defendant failed to countersign.

37. I am of the view that there was no triable issue on this point either for the following reasons:

(1) From the Defendant's own letter of 5 October 2000 it would appear to be the Defendant's understanding that if the terms of the agreement were not signed by the parties there was no agreement. In other words, whatever consensus was reached in the meeting orally, it was subject to a signed document.

(2) It is difficult to see why the Plaintiff would agree to the terms of the settlement agreement as alleged by the Defendant. On the Defendant's case, the only benefit which the Plaintiff would get was the Defendant's payment of the costs of the Plaintiff and its directors in HCCT No.58 of 1999. However, even before the litigation, on 20 January 1999, the Defendant had already agreed to pay the costs of Messrs. Joseph C.T. Lee who were to be instructed to act for the Plaintiff and its 2 directors in the said HCCT No.58 of 1999. Of course I appreciate that since technically the 2 directors of the Plaintiff were not parties to the agreement contained in the solicitors' letter dated 20 January 1999 and for this reason, it might be argued that the agreement to pay also the fees of the directors in September 2000 may still be good consideration in law to support the contract. However, I am of the view that it was unrealistic that the Plaintiff would agree to any such suggestion as the additional costs in the defence of the 2 directors were pretty minimal. In any case, it was likely that when the parties' instructed Joseph C.T. Lee in January 1999, it was within the parties' contemplation that the costs of Joseph C.T. Lee which the Defendant had undertaken to pay would have included the costs of that firm in acting also for the directors.

Other issues

38. The Defendant took issue on the relieves asked for in the summons. It was pointed out that since the summons only asked for "Judgment against the Defendant for the amount claimed in the Statement of Claim with interest, as claimed therein, and costs to be taxed", it would in any event be wrong for the Master to grant any relief other than those prayed for in the summons.

39. It was not contended that the Master had no jurisdiction to grant the relief of declaration. Before me, it was not suggested that I do not have the power or jurisdiction to grant any relieves not spelled out in the summons. This point has not been taken before the Master. Although this appeal before me was by way of re-hearing, the fact that the point was not taken before the Master would mean that the Plaintiff was deprived of the opportunity of applying for an amendment to the prayers of the summons before the Master. Since the Master had given judgment for the Plaintiff and there was no respondent's notice procedure in an appeal before the Judge in Chambers, I am of the view that it would be open to me to affirm the Master's order or to make such other order that I think is appropriate.

The order for payment of the $3,899,600

40. Counsel for the Defendant in the Court below did not take issue with the difference of $600 in the mistake of the figures, and again before me no point on the figure was taken. However, it was contended that since the liability to pay BOCG was owed under a different contract entered into between the Plaintiff and BOCG and was not a liability to the employer SW under the main contract, the Defendant was not liable to pay such sum under clause 6.

41. I reject such contention. Under clause 6, the Defendant would be "responsible for the compensation for all consequences and loss incurred as a result of" the Defendant's using pretext to delay the progress of the Works. In the present case, the Defendant's delay had caused the termination of the main contract and also the claim by the employer against BOCG under the Bond. Although the claim was made against BOCG, it was in fact a claim by SW for the breach of the main contract because that was the condition for liability under the Bond. It was not alleged by the Defendant that the Defendant was not aware of the requirements of the Bond, nor was it alleged by the Defendant that it was not aware of the counter-guarantee given by the Plaintiff to BOCG as a condition for obtaining the Bond. In the circumstances, I am of the view that it was beyond argument that the liability of the Plaintiff to BOCG under the counter-guarantee to indemnify BOCG for the amount of the Bond which BOCG was held liable to pay to SW as a result of the breach of the main contract is a consequence resulting from the Defendant's using pretext to delay the progress of the Works. Likewise the costs and interest which the Plaintiff were held liable to pay BOCG must also be within the compensation payable under clause 6.

The assessment or inquiry of damages

42. Counsel for the Defendant drew my attention to the notes in paragraph 14/4/13 of Hong Kong Civil Procedure 2001:

"Question of account - Leave to defend shold be given where there is reasonable ground for an inquiry or account in order to ascertain the amount recoverable. (Contract Discount Corp. Ltd. V Furlong [1948] 1 All E.R. 274; Lynde v Waithman [1895] 2 Q.B. 180; ....

But judgment may be given for part of the total sum which may be found to be due on an account, where it is clear that there is no defence as to that part, with unconditional leave to defend as to the balance ... "

It was submitted that the passage supported the contention that it would be wrong in an Order 14 application for the Court to grant judgment on liability when there were triable issues on the amount of the damges. The rationale for the contention was that since it would be necessary to assess damages that would mean that the sum for which the Defendant was liable was not clear and the correct order must be un-conditional leave to defend. It was also submitted that although the passage quoted was only in relation to question of account, the same principle must be applicable to question of damages. Indeed counsel for the Defendant was bold enough to admit that the logic of his submission would mean that in an Order 14 application, there shall never be an order for judgment with damages to be assessed.

43. I am of the view that the editor's comment quoted above was only directed at the situation whereby the Plaintiff was asking for judgment on the sum which he said the Defendant was liable to him on account and the Defendant while not denying that he was liable to account, had raised triable issues on liability for that sum. In such situation, the authorities would show that the correct order to make in an application for summary judgment for the sum claimed was that there ought not to be judgment for the amount claimed or conditional leave to defend conditional upon the payment into Court of the amount claimed, but there should be unconditional leave to defend on the account. However even in relation to account, if the liability to account is disputed by the Defendant, but the Court should take the view that the liability to account is plainly established, there is nothing to stop the Court from ordering an account to be taken with unconditional leave to the Defendant to dispute his liability for the amount claimed in the taking of the account.

44. The position is clearly explained in the decision of Lord Greene M.R. in Contract Discount Corporation Ltd. v Furlong [1948] 1 All E.R. 274 which is cited by the editors in the passage quoted. At page 276A-D of the judgment, Lord Greene M.R. said:

"If the defendant had been in a position to swear: "We admit that we are under a liability, but we do not know what it is. We have not got the materials. We do not know the state of the accounts in the books of the plaintiffs, and he company's books are not now available," I should have thought that in a case of this kind, relating to a claim of this character, and depending, as it must, on matters of account, that would have justified and, indeed, led the court to give unconditional leave to defend. In a case which is essentially a matter of account, where the amount can only be ascertained from the Plaintiff's own account, it seems to me that it would be improper to deprive the defendants of their prima facie right to challenge the items in the account and insist on strict proof of them. That is why I mentioned particularly the fact which is, I think, important in this case, that those defendants are guarantors and not principal debtors. They are entitled to know the state of the account as between the Plaintiffs and the principal debtors which they guaranteed. If there had been a denial of liability or a challenging of the account, with an admission, possibly, of the kind I have mentioned, but a refusal to admit the amount and a demand to have it checked by the ordinary accounting process, the proper order to make might very well have been an order for judgment for such an amount as should be found due on the taking of an account. The effect of that would have been to give summary judgment, but to have the amount unspecified until the account was taken and certified. Judgment could then have been signed and execution issued."

45. It is also important to point out that the cases referred to in paragraph 14/4/13 of Hong Kong Civil Procedure 2001 were cases decided quite sometime ago. It is well known that the scope of Order 14 has been widened considerably throughout the years. Order 14 is no longer restricted to a claim for a specific sum endorsed on the writ. The current version of Order 14 provides:

"(1) Where in an action to which this rule applies a statement of claim has been served on a defendant and that the defendant has given notice of intention to defend the action, the plaintiff may, on the ground that that defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part except as to the amount of any damages claimed, apply to the Court for judgment against that defendant." (emphasis added)

46. Plainly whatever was the position in the past, the current wordings of Order 14(1) would allow a plaintiff to apply for judgment leaving the defendant to dispute or defend the question of the amount of the damages.

47. However the Plaintiff in the present case merely elected to pursue its claim for indemnity under clause 6 of the sub-contract in its application for summary judgment. In this regard, I think it would be wrong for the Master to order an enquiry into damages. It is to be noted that it is far from clear from paragraph 27 of the Statement of Claim itself as to what was alleged to be the act of breaches for which the Plaintiff would claim the damages. Even if the breach of contract had been established, as I have pointed out earlier, there may be a significant difference between the amount which the Plaintiff would be able to recover as an indemnity under clause 6 and as damages for breach of the sub-contract, in that in the latter case, the Plaintiff was claiming that it was also entitled to recover damages for loss of the 2% profit and also for loss of goodwill. Even if the Defendant's liability for breach of contract is established, it is by no means certain that the Defendant would be liable to the Plaintiff for any loss of goodwill. As to loss of profit, there was no evidence to show any state of account between the Plaintiff and the Defendant over the question of the 2% deduction. In the circumstances, I am of the view that the proper order was to give the Defendant unconditional leave to defend the claim for breach of the sub-contract under paragraph 27 of the Statement of Claim.

The declaratory relief

48. There is no dispute that in an Order 14 application, in a suitable case, the Court could grant declaratory relief. The Defendant's contention was that the terms of the declaration granted by the Master were inappropriate. The contention was that since the indemnity was sought under clause 6, the wording of the declaration should only follow the wording of clause 6 and at one stage it was even suggested that since clause 6 was in Chinese, I should only grant a declaration in Chinese to follow the exact words used in clause 6. I reject such contention. I am of the view that if I have the view that a declaration is the appropriate remedy even in an Order 14 application, I should grant a declaration in terms which is appropriate having regard to the factual situation of the case before me, and I am not in any way restricted by the form of wordings used in the prayer of the summons or the statement of claim, although I must have regard to them in considering what is the appropriate wordings.

49. In the present case, I note that SW has not brought any action against the Plaintiff for breach of the main contract. Other than having resort to the secured remedy of the Bond, up to now, SW has not sought to recover from the Plaintiff any further damages beyond the sum of the Bond. SW may or may not be prepared to waive any claim against the Plaintiff and if they do make any claim, there may or may not be any defence to such new claim. The claim which may be brought against the Plaintiff may be based on breaches of contract for which the Defendant may not be responsible or may not be fully responsible. Further, the claim may be based on a cause of action which was not within any one of the 3 conditions for liability under clause 6. Thus I am of the view that it would not be appropriate to grant a declaration in terms of paragraph (1) of the prayer of the Statement of Claim as the Master did.

50. On the other hand, it is now established that the Defendant's delay in the Works had brought about the Plaintiff's breach of the main contract and the termination of the main contract with the distinct probability that the Plaintiff would become liable to SW for damages in an amount beyond the sum of the Bond for which the Defendant had agreed to be responsible under clause 6 of the sub-contract. In the circumstances, I consider that the appropriate course is to adopt the same course adopted by the Court of Appeal in Wong Ho Wai Ying trading as Eagle Industrial Co. v Yeung Shui Cheung trading as Cheung Lee Trading Co. (Civil Appeal No. 128 of 1986) to direct that the Plaintiff shall have liberty to apply with respect to any damages (including interest on damages) and costs that may be awarded against the Plaintiff in any claim brought by SW against the Plaintiff flowing from the Defendant's delay in the Works of the main contract. I do not think I should include any claim by BOCG as I am not persuaded that there could be any other than the claim for indemnity under the counter-guarantee or in restitution in relation to the amount of the Bond which had been dealt with separately.

Conclusion

51. I would allow the appeal but only to the extent of substituting the following order:

(1) An order for the payment of the sum of $3,899,600 together with interest at 1% above prime rate from the date of the writ in HCCT No.58 of 1999 and costs which BOCG was entitled to recover from the Plaintiff in pursuance of the decision of Burrell J. in HCCT No.58 of 1999.

(2) The Plaintiff is to have liberty to apply for assessment of damages in respect of any further damages (including interest on damages) and costs that may be awarded against the Plaintiff in any claim brought by SW against the Plaintiff flowing from the Defendant's delay in the Works of the main contract and liberty to enter judgment for such amount after assessment.

(3) There shall be leave to defend the claim for breach of contract under paragraph 27 of the Statement of Claim.

52. On the question as to costs, I am of the view that the Plaintiff is essentially the successful party both in the Court below and before me. However, I must have regard to the fact that the order was in fact varied and the Defendant has succeeded in obtaining leave to defend for certain parts of the claim. I must also have regard to the fact that the relieves asked for in the summons were inappropriate and that had caused some unnecessary argument that had taken some of the time in the hearing. Accordingly I think that the correct order as to costs is that for both the costs here and in the Court below, the Plaintiff shall have 80% of the costs and the balance 20% shall be costs in the cause.