CHAU TIN FONG t/a PERFECT STEEL WORK & ENGINEERING CO v. TSE CHI MING t/a MING WAH ENGINEERING CO AND ANOTHER

HCA1778/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1778 OF 2002

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R U L I N G

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1. The plaintiff is appealing against the decision of the Master who ordered that (1) the default judgment against the 1st defendant was to be set aside; (2) to refuse the plaintiff's application to amend the default judgment. The 1st defendant is cross-appealing against the decision of the Master in ordering an interim payment of $200,000 against the 1st defendant.

2. The plaintiff was the steel binding subcontractor of the 1st and 2nd defendants. He is claiming the sum of $1,045,508, as per invoices rendered, or, alternatively, for a fair and reasonable sum on quantum meruit.

3. Before July 1996, the plaintiff has been dealing with the 1st defendant. Thereafter, the 2nd defendant was incorporated with the 1st defendant being its major shareholder and a director. The plaintiff claimed that the 1st defendant was also liable as an agent of the 2nd defendant thereafter.

4. Default judgment was entered against the 1st defendant on 26 June 2002. After about two weeks, the 1st defendant took out a summons to set it aside. The explanation was simply one of oversight due to professional engagements.

5. What transpired afterwards was that the judgment was entered with $50,000 more. It is common ground that judgment entered for a larger amount is an irregular judgment and is liable to be set aside ex debito justitiae, but the court does have a discretion to amend the default judgment. Its consideration is the same as in setting aside a regular judgment, that is, whether there is a defence on the merits with real prospect of success.

6. The defence raised a number of issues. The first one is the liability as the contracting party of the 1st defendant.

7. The 1st defendant said that after the incorporation of the 2nd defendant, all the contracts with the head contractors were entered into in the name of the 2nd defendant. The plaintiff has also issued quotations to the 2nd defendant in three cases.

8. On the other hand, the plaintiff said that he had always been dealing with the 1st defendant himself alone, and he could not accept that the 1st defendant, who was the major shareholder of the 2nd defendant, was to escape liability. It was submitted that the plaintiff is a layman and he could well have got the capacity of the 1st and 2nd defendants mixed up, in that in the 1st defendant's name card, both his own trade name as well as the name of the 2nd defendant do appear.

9. On this issue of liability of the 1st defendant, in view of that quotations have been issued to the 2nd defendant after 1996, I am unable to say that the 1st defendant's dispute of liability has no real prospect of success.

10. The second issue is one of quantum. The defendants have produced expert evidence from the quantity surveyor who assessed the work done by the Standard Method of Calculation and come to an opinion that there was a dispute as to quantum between the plaintiff and the defendants.

11. The plaintiff queried the Standard Method of Calculation adopted by the quantity surveyor. First, it was submitted that it had not been agreed when the agreement to render service was formed; and secondly, it was not the proper basis because there were variations as to the exact amount of work done on site. Rather than using the basis of work done, which is based on the unit rates of work and the actual amount of work done, the plaintiff submitted that the alternate basis of day work, that is the exact numbers of workers engaged times the number of days, should be used.

12. The defendants queried that even on this basis, the plaintiff has produced no workers' records whatsoever.

13. The plaintiff also said that it had always been the practice that the plaintiff would not over-bill the defendants, and the defendants would accept the plaintiff's invoices and pay accordingly. Examples or references were made to four invoices rendered in 1996, in that the 1st defendant had paid the plaintiff for work done as per the invoices. The plaintiff also said that at some later stage of reckoning the payment, the defendants had also accepted work done as the basis.

14. The defendants submitted that those four invoices where payment was made in full occurred at the very early stage of the relationship between the plaintiff and the 1st defendant. Since then, from about 1997 up to 2000, for the subsequent 42 invoices rendered by the plaintiff, they had not been paid as per the invoices, but rather, paid in lump sum. Hence, payment was not invoice specific, and this allegation that the defendants had always paid the plaintiff as per the invoices rendered simply did not hold true.

15. The plaintiff tried to attack the credibility of the 1st defendant as to how payment had been assessed from time to time. An example was cited of the Tsuen Wan project where $64,138,40 was paid by the 1st defendant to the plaintiff. The 1st defendant's evidence was that he would adjust the amount claimed by the plaintiff with reference to the amount allowed on the certificate of payment by the project manager in relation to payment claimed by him. The plaintiff submitted that $45,900 was paid on the 15 February 1997, and the certificate of payment was dated 8 March 1998, and it exposed the lie of the 1st defendant of assessing the amount to be paid by reference to the certificate because the payment pre-dated the certificate. On the other hand, Mr Chain for the defendants referred me to the second instalment of the payment of $18,239.40 made on 26 March 1996, which was after the date of the certificate, and it must have been taken into account the adjustment on balance after certification.

16. I have been referred to copious appendices of the work done claimed and assessed on the various disputed projects, which run to over 20 pages. Bearing in mind the quantity surveyor commented that there was a dispute as to the quantum, and at this stage I am in no position to say that the method of calculation adopted by the quantity surveyor must be wrong, I am of the opinion that this dispute cannot be resolved without hearing evidence. Hence, I cannot say that the defendants have no real prospect of success in defending the amount claimed by the plaintiff.

17. There is another matter as to interim payment. The Master has ordered an interim payment of $200,000 against the 1st defendant. It is common ground that the plaintiff has been paid the amount of $3,105,068. The 2nd defendant admitted that there is still a shortfall of $50,062.

18. Mr Yip for the plaintiff referred me to an estimate of the 1st defendant, and his valuation of the project sum due to the plaintiff should be $3,357,970. Comparing this with the figure of $3,105,068, there is a difference of $252,902. The defendants are now saying that this high estimate by the 1st defendant may be subject to adjustment.

19. Having looked at the schedules of the work done claimed, and also taking into account that the 1st defendant has at some stage put up his own estimate of $3.35 million, I am satisfied that there is proper basis to say that at least $200,000 should be due to the plaintiff. Because there is a dispute as to liability of the 1st defendant and 2nd defendant have admitted liability albeit it to the extent of $50,000 only, I shall order the amount of the interim payment shall stand, but it should be against the 2nd defendant.

20. The plaintiff has submitted that the original time for payment of the interim payment had lapsed in mid-February. Hence, I shall make this payment order to be made forthwith.

[Discussion re costs]

21. Mr Yip submitted that notwithstanding the plaintiff had lost the appeal, the costs should be to the plaintiff because the 1st defendant was the party to blame in bringing about the whole saga in that, firstly, he did not enter a defence; and secondly, after he knew about the enforcement proceedings of the default judgment, he did not indicate that he would file a defence by a certain date; and thirdly, the judgment was only irregular for a technical matter of the amount being overclaimed.

22. Be that as it may, the matter has gone before a Master and now on appeal before me, and I have come to a decision on the merits of the matter. I fail to see why after hearing the matter on the merits the second time round, costs should follow the event. So I will order that as to the appeal, costs are to be paid by the plaintiff to the 1st defendant; and as to the costs of the cross appeal on the interim payment, costs are to be paid by the 1st defendant to the plaintiff.