JETS TECHNICS LTD v. THE HONG KONG JOCKEY CLUB

CACV 11/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 11 OF 2010

(ON APPEAL FROM HCCT NO. 23 OF 2009)

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BETWEEN

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Reyes J given on 16 December 2009. The matter before the judge was an application by the defendant to strike out the statement of claim on the ground that it was an abuse of the process of the court. The judge acceded to that application and struck out the statement of claim; the plaintiff’s action was, accordingly, dismissed.

2.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

3.  The plaintiff is, amongst other things, a specialist contractor for the supply and installation of recycled and recreational products.  It was invited to quote for the supply and installation of recycled plastic works for the wood decking and railings which would be part of the renovation of the Old Club House at the defendant’s Beas River Country Club.  That quotation was duly provided.  By letter dated 5 February 2008 the defendant wrote and the plaintiff countersigned a Letter of Intent.  That letter commenced:

“We, The Hong Kong Jockey Club (“the Club”), are pleased to inform you that it is our intention to nominate you as the Nominated Sub-Contractor for the supply and installation of recycled plastic works and including the provision of 12 months free service and maintenance after practical completion (hereinafter called “the Sub-Contract Works”) for the renovation of Old Clubhouse (hereinafter called “the Main Contract Works”) at Beas River Country Club, Sheung Shui, Lot No. 922 in D.D. 94, New Territories based on the terms and conditions as stated in the Tender Documents, your Tender, post-tender correspondence on the following supplementary conditions:-

1          Awarded-Contract Sum

The Awarded Sub-Contract Sum for the completion of the whole of the Sub-Contract Works shall be a lump sum of $3,295,499.00 (Hong Kong Dollars Three Million Two Hundred Ninety Five Thousand Four Hundred and Ninety Nine Only).

2          Sub-Contract Period

………….

3          Nominated-Sub-Contract

You shall enter into a Nominated Sub-Contract with the Main Contractor to be appointed by us for the Main Contract Works.

………….

8         Sub-Contract Documents

i)          The Sub-Contract Documents shall consist of:

………….

Unless and until a written acceptance is issued by the Main Contractor or the formal Sub-Contract Documents are prepared and executed, this Letter which is to be countersigned by your company, together with the written acceptance thereof by you, the Tender Documents, your Tender and the Post-Tender Correspondence listed in Clause 8 (i) above and the Sub-Contract Conditions defined in the Tender Documents, shall constitute a binding contract between us and your company for us to nominate you and for you to proceed with the works and get paid.  In the unlikely event that the nomination is not accepted by the Main Contractor, you will be reimburse the cost properly incurred by you according to the Sub-Contract rates and prices that there shall be no claim for loss of profit for work not done.

When a written acceptance is issued by the Main Contractor or the formal Sub-Contract Documents Are Prepared And Executed, The Binding Contract Shall Be Deemed To Have Existed between the Main Contractor and you as from the date of this letter as if the Main Contractor had accepted your tender in place of us on the said date.”

4.  There is no doubt that letter of intent was duly signed both on behalf of the defendant and on behalf of the plaintiff.  That was followed by what was identified in the letter as Letter of Intend from T.O.P. Contracting Ltd (“TOP”).  That letter was dated 3 April 2008 and addressed to the Senior Sales Manager of the plaintiff and the material part is read as follows:

“Dear Madam,

Re: Letter of Intend

Renovation Work at HKJC BEAS River Clubhouse at Sheung Shui

With reference to captioned project, we are pleased to confirm that you have been nominated as a Nominated Sub-contractor to Main Contractor (T.O.P. Contracting Ltd.) for the captioned sub-contract as part of Main contract of the renovation of Old Clubhouse at HKJC BEAS River Country Club Sheung Shui Lot No. 922 in D.D. 94 at a lump sum price of HongKong Dollars $3,295,499 (Hong Kong dollars Three Million Two Hundred Ninety Five Thousand Four Hundred & Ninety Nine Only) and subject to the condition of HKJC Letter ref.AC/P0155/08 dated 05 February 2008 - Letter of Intent and the following requirements:-

1. Construction Period

(a) Site works started on 11 February, 2008 and should be completed on 10 May 2008.

…………..

2. Scope of works

…………..

3. Quality and Quantity of products and workmanship: -

(a) Being a part of sub-contract, you are responsible for ensure the quality of products and workmanship should be achieved our client and consultant’s standard. Furthermore, you are required to closely coordinate with Main contractor to obtain the updated information, material production / delivery schedule and item schedule. A full time technical staff should be appointed on-site during installation works.

…………..

(e) You shall enter into a Nominated Sub-contract with the Main contractor for carrying out these Sub-contract in the form described in the tender documents.

4. Surety Bond & Employees’ Compensation Insurance

…………..

5. In-house policy

…………..

6. General:-

(a) This letter of intend, together with the letter of nomination from HKJC covered by architect construction 0737/MC/AI-006 dated 05 February 2008, the List of Pre-contract correspondence as per page 4 in Letter of nomination, shall be incorporated into and shall form part of the Sub-contract documents.

(b) Unless and until a formal Sub-contract is prepared and executed, this letter of Intend together with letter of nomination, your submitted tender and the relevant correspondence as listed in page 4 of the Letter of Nomination, shall constitute a binding contract on the Employer’s part to nominated you as nominated Sub-Contractor for this Sub-Contract to the Main Contractor, and on your part to accept such nomination.

Please signify your formal acceptance to the above by signing on the duplicate of this letter and returning the signed duplicate together with the resolution document to our office within 3 calendar days from the date of this letter for our further action.”

5.  As can be seen from the timing of the letter of 3 April 2008, there was clearly some urgency in the work being carried out.  There is no dispute that the plaintiff did carry out work.  There is also no dispute that although a form of subcontract was transmitted to the plaintiff from TOP on 9 October 2008, neither that nor any other subcontract document was signed.  Nevertheless, it would appear that payment was received by the plaintiff from TOPfrom time to time.

6.  On 16 September 2008 the plaintiff commenced proceedings, HCCT 43 of 2008 against TOP in which it claimed the sum of $1,111,000.00.  Initially, that action was brought on the basis that the claim was made in respect of the Interim Payment No. 4 as a result of certificates issued by the project quantity surveyor and architect.  The application for summary judgment was met with a counter application for submission of the dispute to arbitration under the terms of the standard subcontract documents.  The pleadings have been the subject of various amendments and the plaintiff ultimately based its primary claim on quantum meruit and, in the alternative, on contract.

7.  TOP, for its part, averred that although there had been no formal subcontract executed and that it had yet to issue a written acceptance, the position was that the plaintiff had accepted the terms of the subcontract which had been submitted and had agreed to execute, complete and maintain the subcontract works in accordance with the subcontract documents.  In those circumstances it was said that the plaintiff was bound by the terms of the subcontract.  Amongst the matters relied upon were the facts that the plaintiff had submitted quotations for variations of the subcontract works when they were beyond the scope of the subcontract works and that the plaintiff had accepted and received amounts certified under Certificates of Payment issued by the Architect in accordance with the terms of the subcontract.

8.  That action came on for trial in February of this year.  Reyes J gave judgment for the claimed sum less a minor deduction in respect of alleged defects.  In giving his judgment, Reyes J noted that the plaintiff maintained that its case against TOP was based upon quantum meruit whereas TOP argued that the matter should be considered on the basis of the plaintiff being a subcontractor.  It appears that the judge did not consider it necessary to decide which of those contentions was correct because the outcome of the case would be the same in either event.

9.  Almost a year after the commencement of the action against TOP, on 6 July 2009, the plaintiff commenced the present proceedings against the defendant.  The claim in this action includes a claim for the contract sum of $3,295,499 as well as other items.  Credit is given for payment already received from TOP as the Main Contractor.  Furthermore, the plaintiff acknowledges that it should give credit for any sum received from TOP as a result of the action against TOP.

The decision below

10.  The judge heard defendant’s application to strike out this action on the basis that it was an abuse prior to hearing the plaintiff’s action against TOP.  He was quite firm in his view.  At paragraph 5 of his judgment he said:

“5. Jets says that no written acceptance was ever issued by TOP and no formal Sub-Contract Documents were ever executed. Jets accordingly contends that the Jockey Club is liable for all the work carried out by Jets on the project.

6.         In my view, there is no merit to Jets claim against the Jockey Club.”

11.  Then after considering the usual arrangements between a main contractor and a subcontractor, he said at paragraph 9 that he did not consider it pertinent whether or not TOP issued a written acceptance or TOP and the plaintiff executed a “formal” written subcontract.  He considered that it was clear that, at all material times, TOP treated the plaintiff as the nominated subcontractor.  In paragraph 12 of the judgment the judge said:

“Plainly, all the LOI was saying was that Jets could immediately proceed to work on the project as Nominated Sub-Contractor.  The Jockey Club was assuring Jets that, notwithstanding the absence of any written acceptance or formal Sub-Contract, Jets could confidently regard itself as a Nominated Sub-Contractor who would be paid as such in accordance with the typical arrangement.  Read in context, I do not think that the reference to “get paid” in the LOI means anything more than that.”

This appeal

12.  On this appeal Mr Clayton SC, who appeared on behalf of the plaintiff, argued that the judge thus took into account facts which had not been proved but were matters for trial.  Mr Clayton’s primary case was that the terms of paragraph 6, in particular paragraph 6(b), of the document entitled Letter of Intend made it clear that TOP had not accepted the plaintiff as a subcontractor in writing.  In those circumstances, it was said that the plaintiff’s claim must be against the defendant in this action.

13.  Given all the surrounding circumstances to this case, I consider that it is taking too narrow a view of the facts to level criticism at the judge for the approach which he took.  Nevertheless, I would also add that I consider the claim to be self-defeating.  The Statement of Claim recites considerable history of interaction between the plaintiff, the defendant, the architect,the quantity surveyor and, in particular, TOP.  It is unnecessary to set that out in detail save to say that the conclusion must be that all parties treated the plaintiff and TOP as being main contractor and subcontractor.  In paragraph 42 of the statement of claim the plaintiff acknowledged that it had received “the sum of HK$1,713,000 from the Defendant through the Main Contractor.”  That, would be entirely consistent with the judge’s approach that, until it became convenient for the plaintiff to try to mount a case outside the terms of the subcontract, the parties approached the matter on the usual basis of main contractor and subcontractor.

14.  I would add that to interpret the document referred to as the ‘Letter of Intend’ (sic) as not constituting a written acceptance by TOP of the plaintiff as a nominated subcontractor might be justified on a very strict linguistic interpretation.  However, the clear practical position was that following the acceptance of that letter by the plaintiff, all parties were clearly committed to entering contractual relations with each other.  Read sensibly, in the context of the fact that the plaintiff was clearly already carrying out work, TOP had become the Main Contractor and the parties proceeded on the basis of the Main Contract being in effect with instructions coming from the Architect, I cannot see how it can be said that TOP was doing anything other than accepting the plaintiff as the Subcontractor.

Conclusion

15.  In the circumstances therefore I see no alternative but to dismiss this appeal and make an order nisi of costs in favour of the defendant.

Hon Stone J:

16.  I have had the advantage of reading in draft, and respectfully agree with, the Judgment of Rogers V-P.

17.  I would make two additional observations.

18.  First, notwithstanding the robustly semantic argument of Mr Clayton SC (who has come but lately to this litigation) and who persuasively has said all that reasonably could be said on the point, at the end of the day this case was about the construction of the so-called ‘Letter of Intend’ (sic), and it struck me that in the particular circumstances of this case that to accept Mr Clayton’s submission on the construction of that document would have constituted a quintessential “game with words”, which Lord Hoffmann’s celebrated dictum in Jumbo King Ltd v Faithful Properties Ltd & ors, (1999) 2 HKCAR 279, at 296, made clear that such process demonstrably is not:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean...And this involves having regard not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended…”

19.  In like regard see also the judgment of Tang LJ in Goldlion Properties Ltd v Regent National Enterprises Ltd, [2008] 3 HKLRD 104, at 119-120, wherein the learned judge referred to the necessity to construe clauses so as to provide a commercially sensible construction, noting in this regard that Ribeiro PJ in Ying Ho Co Ltd v Secretary for Justice (2004) 7 HKCFAR 333, at 379, had observed that the court is often willing to imply a term that the parties shall co-operate to ensure performance of their bargain.

20.  In my judgment, there can be, and have been, no real doubt as to what the bargain was in this case.

21.  This leads to the second point.  It strikes me that there is something procedurally very odd about commencement of this second action against the Jockey Club.

22.  In his judgment the Vice-President has made reference (at paragraphs 6-9 herein) to the collateral action commenced almost a year earlier, on 16 September 2008, by the present plaintiff, JETS, against TOP in HCCT 43 of 2008, which action was decided by Reyes J in February of this year, and resulted in the recovery by JETS of the claimed sum of some HK$1.11 million, less a minor deduction of HK$20,000 resulting from defects in the work done.

23.  For my part I am wholly unable to understand why, in light of this earlier action (wherein the relationship between TOP and JETS clearly was a highly relevant consideration), that first, the entire sum as now claimed against TOP by JETS ‑ in the current claim placed at HK$3.348 million, which amount includes the sum recovered in the earlier action, and for which it was intended that credit be given ‑ was not claimed in this initial action; and second, why, if there was seriously said to be a contractual nexus with the Jockey Club, that entity was not joined as 2^nd defendant to TOP in HCCT 43 of 2008 – in which regard I should record that in his judgment in this latter case (at paragraph 4) Reyes J may be mistaken in referring to his refusal to permit such joinder; whilst it does not greatly matter, perusal of the court file and the recollection of  junior counsel invite the conclusion that no such joinder application was made.

24.  Be that as it may.  In the present circumstances it seems to me that the present claim against the Jockey Club is not only untenable and doomed to fail as a matter of construction (and, for that matter, on the known facts), but that in substance it represents no more than an eleventh hour attempt to rescue the procedural position, and now to claim that which manifestly should have been the subject-matter of the first action.

25.  I too agree with the Order proposed by the Vice-President.